What is the difference between normalized FCFE vs FCFE?
Adding/Subtracting any extraordinary losses/gains to net income before calculating FCFE I would assume.
I thought it had to do with seasonality and cyclical adjustments…could be wrong though
I think normalized is what has to do with seasonality and cyclical adjustments… adding/subtracting extraordinary losses/gains is for underlying FCFE/EPS etc… “I think” are the key words here…please correct if i am mistaken
As far as most of the “normalized” explanations in the Schweser text go…I too would assume they are adding/subtracting extraordinary losses/gains, and adding/subtracting non-recurring items from your NI OR CFO…depeding which one you use to calculate FCFE…
Wasn’t normalized using the Average EPS over a business cycle or using Avg ROE * current BVPS to estimate earnings in a manner that removes any business cycle component from the earnings and reduces its inaccuracy due to business cycles. Don’t have the notes in front of me, can someone confirm?
you’re right adb258
Underlying earnings are the core-ongoing earnings from the crux-operations of the firm, so we need to subtract the nonrecurring/seasonal items to get to ‘underlying’ earnings AND normalized earnings are the one adjusted for Molodovsky’s countercyclic effect using either the average-historical-EPS method or the avg-ROE method (preferred).