REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
|
|
 |
Normalised
earnings
In assessing a company’s
underlying earnings trend the crucial distinction for IIMR purposes is between
trading items on the one hand, and non-trading or capital on the other. In reality
the market tends additionally to discount items such as large redundancy costs,
reorganisation costs, or an exceptional tax charge. These are each classed as
being of a trading nature according to the IIMR guidelines, and therefore remain
within the IIMR earnings figure.
In order to take account of
such items, Company REFS shows figures based on normalised earnings. The
paramount consideration for normalised purposes is the distorting effect on underlying
earnings. For any item to qualify for adjustment in arriving at normalised earnings
it must satisfy all of the following criteria:
- The amount must be sufficiently
large to have a materially distorting effect on the earnings per share trend.
- Its nature must be separate
from normal trading and clearly identifiable.
- It must be unusual in
nature and not expected to recur in the normal course of events.
- It has been, or is likely
to be, ignored by most analysts in establishing an actual earnings performance
base upon which to build future estimates.
Within Company REFS,
the normalised operating profit figure is used in the calculation of Margin, ROCE
and ROE. The normalised EPS figure is used within the PER and PEG, and for measuring
historic and forecast earnings growth.
See Identifying IIMR
and normalised earnings adjustments; Adjusting
for tax; Adjusting for
minority interest;and Illustrated
calculation
|
|
|
