Series 79 practice questionhardPeer Group Outliers
A peer group includes a company with extraordinary one-time gains. For accurate sector comparison, which adjustment is MOST appropriate?
- ANormalize earnings by removing one-time gains from EBITDA✓ Correct answer
- BUse GAAP net income without adjustments
- CIgnore the outlier and average the group
- DUse trailing twelve-month sales only
Explanation
Why A — Normalize earnings by removing one-time gains from EBITDA
Removing one-time gains normalizes earnings for comparability. Using unadjusted GAAP numbers or ignoring the issue misstates peers, and focusing only on sales removes relevant profitability information.
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