Series 79 practice questionmediumFinancial Statement Analysis
A company reports a one-time $50 million gain from the sale of an asset on its income statement. When assessing quality of earnings, what action should an analyst take?
- AInclude the gain in adjusted EBITDA
- BExclude the gain from normalized earnings metrics✓ Correct answer
- CTreat the gain as recurring revenue
- DIncrease forecasted margins by the gain
Explanation
Why B — Exclude the gain from normalized earnings metrics
Non-recurring gains are excluded from normalized metrics to assess sustainable earnings. Including them inflates perceived profitability and can mislead valuation analyses.
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