Normalised Earnings Per Share (norm eps)

The most important feature of the EPS entry in REFS is that it is not a reported figure but, where possible, a rolling 12-month view of expected earnings over the next year. Because of this, it changes every month and gives a dynamic, up-to-date view of a company's future profitability.

Whenever future estimates are available, REFS focuses on the 12 months immediately ahead and this is indicated, in brackets, by the letters 'pr' (denoting prospective). If no forecast is available, historic figures based on the last reported 12 months results are used.

The prospective normalised EPS figure is calculated by apportioning brokers' consensus forecasts for the current and next financial periods. For example, if the calculation were made on 1st March 1998, for a company with a financial year ending on 30th June 1998, a third (four months) of the consensus estimate for the current year would be added to two-thirds (eight months) of the estimate for the following year ending 30th June 1999.

The 12-months ahead method of calculation used in REFS has three important advantages:-

1. The company entries and tables are always as up-to-date and dynamic as possible.
2. The figures in the tables are always as comparable as possible.
3. The figures in the tables (and the company entries) are smoothed to avoid violent swings in ranking in the tables on the day results are announced.

In response to the introduction of Financial Reporting Standard 3 (FRS3), several different versions of EPS have evolved. The most useful of these, from an investor's point of view, is normalised EPS, which has been adopted by REFS in the key statistics panel.

The key differences between FRS3 EPS and normalised EPS are that normalised EPS exclude exceptional items and possess three important characteristics:-

1. They reflect the underlying trading performance of the company.
2. They can be used as a measure of performance against expectations.
3. They clarify the historic record of the operating performance of a company.

The main limitation of normalised EPS is that they reflect the results achieved during a given accounting period, although the company's structure may have changed subsequently. For example, normalised earnings include the results of trading businesses which have been
discontinued or sold and include only part of the results of businesses acquired during the year.