always assume...?

Today on a Schweser practice a question asked for a simple ratio…like net income. It did not ask for normalized, but the answer was normalized. So, it got me wondering for the test, should we always assume when asked to calc a ratio that we should make analytical adjustments (e.g., remove extraordinary items from net inc) before doing so, or will we be specifically asked to do so?

I don’t think anyone can give you a definite answer on that. I guess in my mind, if they make a point of mentioning non-recurrent charges, etc you should calculate both, if the normalized ratio matches one of the answers that would be my guess.

It would be great if you could drop-in that question here for scrutiny and context/verbiage check!!

Dinesh, I should’ve learned from last time you always want to see the ?..ha. I don’t want to give it away on here b/c it’s part of a practice exam, and a long vignette, but it’s on page 24 (#30) of volume 1. It asks for the underlying EPS of a firm. Perhaps underlying is a key that it should be normalized here?

haha… If it’s from the Schweser test, then I better not look at it now :slight_smile: But seems something related to the ‘very famous on AF’ Molodovsky effect?

Swan’s on target. I think the question on the exam would have a hint or some other type of clue … such as “the analyst reviewing the statements is concerned that net income is not representative of the overall sales cyle of the firm.”

CFAI makes a point to have very clear questions. None of those confusing “Is John right to disagree with Mikes statement against the standard.”

according to Schweser notes - Normalized = underlying There is a professor’s note on page 322 of Book 2.

great spot planner