restructuring charges on core earnings.

Current year earnings per share $3.60 Expected restructuring charge next year as a % of EPS 2% Expected EPS growth next year vs. S&P 500 1.15× Most recent year annual dividend $1.01 Current share price $57.00 S&P 500 expected EPS growth rate 8%

we are being asked to calculate forward p/e. the answer is 14.2. I did not get this answer b/c i subtracted the restructuring charge from earnings to get core earnings. However the answer add the restructuring charges back on. why? aren’t non-recurring charges subtracted because they were included as part of earnings before?

Where did you see this question?

I just did a similar question (can’t remember if it was a CFAI TT or a Schweser mock), but the question told you to exclude the restructuring charges to calculate core earnings, and use that to calculate P0/E1.

Does it say to calculate the forward P/E or the forward _ core _ P/E?

It says to just calculate forward p/e. Ah ok is that why we add it back? because if its core p/e we need to subtract it?

Could anyone comment please

Ive re-read the question again and its calculating core eps.

Ah ha!

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sorry Bill. My original question still remains. why do we add restructuring charges? shouldn’t core eps mean we remove the non-recurring charges? I’m still confused here.

Ok I think I know why. its for the same reason that we subtract one time/non-recurring benefits. i.e. we added it to earnings before but b/c its actually a one time/non-recurring benefit we must subtract because it was wrongly added before.

similarly with one time non restructuring charges this was previously subtracted before but because its a one time restructuring charge we now add the expense since its non-recurring?

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I hope I’m correct?

any comments?

Yes, you are correct. If you want to calculate core earnings, add back non recurring charges, subtract non recurring benefits.