Equity Analysis and Valuation

Chapter XI
 Earnings Persistence
• A good financial analysis identifies components
in earnings that exhibit stability and
predictability-that is, persistence components.
• Recasting aims at rearranging earnings
components to provide a meaningful
classification and relevant format for analysis.
• Components can be rearranged, subdivided, or
tax effected, but the total must reconcile to net
income of each period.
 Earnings Persistence
• Analysis of operating results for the recasting
and adjusting of earnings requires reliable and
relevant information.
• Major sources of this information include:
▫ Income statement
 Continuing operations
 Discontinued operations
 Extraordinary gains and losses
▫ Other financial statements and notes
▫ Management discussion and analysis