Page 10 - FINAL CFA II SLIDES JUNE 2019 DAY 8
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LOS 31.e: Calculate and interpret underlying READING 31: MARKET-BASED VALUATION: PRICE AND
earnings, explain methods of normalizing ENTERPRISE VALUE MULTIPLES
earnings per share (EPS), and calculate
normalized EPS. MODULE 31.4: EV AND OTHER ASPECTS
Underlying Earnings (a.k.a. persistent, continuing, or core earnings), earnings that exclude nonrecurring components, such
as gains and losses from asset sales, asset write-downs, provisions for future losses, and changes in accounting estimates.
EXAMPLE: Calculating underlying earnings: Using the data in the following figure, calculate the trailing P/E for Magnolia
Enterprises as of September 2014 using underlying earnings.
Answer: 12-month EPS = 1.45 + 1.30 + 1.40 + 1.35 = C$5.50
underlying earnings = 5.50 – 0.30 + 0.55 = C$5.75
