I know the default for treatment of restructuring expense is to exclude from operating income. But it seems like some companies are incurring this expense almost every quarter and every year. What is typically included in this expense? - I know sometimes it can be for severance pay / early retirement. If a company announces a large restructuring expense to occur, how are you pricing this into the stock?
If its not expected to reoccur than you should exclude it, no?
Certainly some restructurings (e.g., after a large acquisition) can take place over a long period – years. It definitely has finite life however, so you should just discount the expected payments and take those as a one-time hit against EV.
Deskjockey894 Wrote: ------------------------------------------------------- > I know the default for treatment of restructuring > expense is to exclude from operating income. But > it seems like some companies are incurring this > expense almost every quarter and every year. What > is typically included in this expense? If a company has a one-time charge that appears to consistently occur, try and normalize it and price it in to your ratios. A lot of “one-time charges” are really just management finally coming clean on mistakes they made years ago and should have written down slowly but surely, instead of waiting to take a “big bath” writedown when it couldn’t be avoided. Most common one I can think of is inventory or property writedowns - some companies will let that stuff fester until they have to mark it down big amounts. Try and figure out the frequency of occurrence and then come up with a reasonable “normalized” figure. i.e. if they’re marking down inventory a certain % or amount every two years, figure out what the %age markdown is and what the avg rate or amount is over a 5 yr or 10 yr period. Use it to try and estimate the expense, then build it into your ratios. Not a perfect system but far better than ignoring the fact that the company has “one-time charges” that re-occur like clockwork. Obviously a better system still would be if you could go and actually inspect the physical inventory or property or get lots of information on the asset in question, but if you’re just at your desk modelling, it’s usually not possible.
The general rule is to remove it in short-term calculations, UNLESS it is a recurring expense, and include it in long-term calculations.
my company loves to throw anything and everything they can find into the restructuring bucket. in our IR decks, I always argue that it should be taken into account - i always lose those arguments