CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Which statement(s) is (are) true regarding earnings normalization?

I. With normalizing adjustments, analysts attempt to adjust private company earnings to a reasonably well-run, public company equivalent basis.
II. Unlike overstated expenses, understated expenses should not be adjusted in the process.
Correct Answer: I

I. Normalization of earnings is a process of equating private company earning to their as-if-public equivalent.
II. If private companies have limited profits, expenses may be understated to inflate reported income. They should still be normalized to reach the true income figures.

User Contributed Comments 0

You need to log in first to add your comment.