I’m using Schweser BTW. First one is on FSA, LOS 27.C where you take out non-recurring items affecting EPS The second one is on Equity LOS 43.d, where normalized earnings is taking an estimate of EPS in the middle of the business cycle. What is confusing is that in equity they use “Underlying Earnings” to describe the FSA version of the normalized earnings, and “normalized earnings” to describe the estimate of EPS in the middle of the business cycle. What gives???

is the 43d thingie related to Mr. Molodovsky???

Molodovskyyyyy… Good old days!

yes. any idea on these two definitions?

what is molodovsky effect – understand that and you will understand the difference. When a company is in a cyclical industry - at the peak of cycle they would have high earnings - and hence a low P/E. In the trough of cycle - low earnings - hence high P/E. Now if you needed to identify and arrive at the P/e for valuation of a cyclical company - what do you use? High P/E or Low P/E ? Two approaches: 1. Use average P/E. This is using the Average EPS number in the middle of the cycle. 2. Use the Average ROE Method. This method uses the Average ROE and then multiplies the average ROE by the current BVPS (Book Value Per Share) to arrive at the P/E.