# Schweser Exam 1AM - Underlying EPS

The solution here is 30,400,000 + 189,100,000 = 219,500,000 219,500,000 (1-.34) = 144,870,000 144,870,000 / 106,530,610 = \$1.36 Where do they find the 34% tax rate? I can’t derive it from the given income statement. And what is the deal with tine “income taxes - current” and “income taxes - future”?

it states in the question theres a tax rate of 34%… if you are talking about question #29. haha

dammitttt i reread the vignette 2 times and the tax rate was in the actual Q. thanks.

So when calculating “underlying” EPS, we have to add back the non-recurring costs, but no need to when calculating EPS, is it right? Except from non-recurring costs, is there anything else we need to pay attention to when calculating underlying EPS?

non recurring costs, or i think extraordinary income if i’m not wrong… special and one time stuff like that.

I love to see a good explanation/formula for “underlying EPS” 'cause I just skipped the question since I had no idea what they were asking.

freakingout Wrote: ------------------------------------------------------- > So when calculating “underlying” EPS, we have to > add back the non-recurring costs, but no need to > when calculating EPS, is it right? > > Except from non-recurring costs, is there anything > else we need to pay attention to when calculating > underlying EPS? Right, the underlying EPS is an analyst adjusted EPS while reported EPS includes all those non-recurring gain/losses.

Thanks, thanks something I can remember

what about normalized, vs. underlying vs. reported… Schweser Mock AM had a question on that. regarding using with EPS would provide the highest P/E number. from the data provided Normalize vs. Underlying was the same. and they were both higher EPS numbers that the reported. So I selected that Reported EPS would give the highest P/E - WRONGLY!

cpk which question are you talking about? underlying means adjusting for extraordinary or unusual items. normalzied means adjusting (i.e. smoothign) for the busienss cycle there are two ways to normalize: (EPS1 + EPS2 + EPS3 + EPS4)/4 OR (ROE1 + ROE 2 + ROE3 + ROE4) x BV4

This was on the Schweser Mock exam… (49\$ mock)

so if reported was the lowest eps then why is it incorect that with reported you get the highest p/e? whats the explanation?

Their answer was: Industry and Company was three years into its expansion cycle. So in all likelihood, normalized earnings would be lower than the reported earnings. They had also provided info with regards to some environmental remediation that the company had to undertake in this cycle - so that needed to be added back - so the underlying earnings would be higher than reported earnings. given this - the normalized earnings would be the lowest of the lot… and P/E based on that would be the highest.

ok that makse sense…didnt realize that you had to make further adjustments to the reported eearnings.