12-27-2017, 06:50 PM
Here are 2 excerpts taken from one of the Fastgraphs pages explaining the different types of earnings. Here's the Link
It seems that Mr. Chuck Carnevale favors using the operating earnings when assessing the fair value of a company.
I would tend to look if "unusual" or "non-recurring" items are reported every year. In that case, they would not really be unusual after all and should be considered.
It seems that Mr. Chuck Carnevale favors using the operating earnings when assessing the fair value of a company.
Quote:Adjusted (Operating) Earnings – The problem with basic and diluted earnings are that they may not accurately or adequately reflect the health of the business or the underlying earnings power of the company, because of the potential inclusion of unusual items that are not expected to occur every year. Consequently, many companies will report “adjusted,” “non-GAAP” or “operating” earnings. Since this version of earnings excludes special items and nonrecurring charges, they are thought to better reflect or perhaps paint a clearer picture of the actual operating results of the respective company’s business. In other words, special items are excluded because they are not considered regular or constant expenses or benefits required for the day-to-day operations of the business.
Quote:... Experience has shown that this version of operating earnings usually presents the best correlation between earnings and stock price. In other words, stock price tends to track and correlate to operating earnings more closely than versions of earnings that also includes special items. ...
I would tend to look if "unusual" or "non-recurring" items are reported every year. In that case, they would not really be unusual after all and should be considered.