Casey Goh asked 6 months ago
In the course video for case of Apple, EPS used is earnings per share ( excluding exceptional items ). When I google, most sources give EPS inclusive of exceptional items. What is the reason for 5P take the first EPS ? Also since the second EPS is easily available onsite , I suppose as long as we are consistent in using same type of EPS for all the years, the valuation chart would not be too different ? Thanks.
1 Answers
Victor Chng Staff answered 6 months ago
Hi Casey,
If the exceptional item is a one-off (non-recurring) event, it may temporarily boost earnings, but it is not sustainable. If the exceptional item contributes less than 5% of profit, an adjustment may not be necessary, as the impact is small. However, if the exceptional item makes up a significant portion of earnings, the reported earnings will be inflated. This can lead to an overstated intrinsic value, even though the company’s true intrinsic value is actually much lower.
As a result, you may think you are buying the company at an undervalued price, but in reality, you may be overpaying. Therefore, if the exceptional item is a large percentage of earnings, it is better to adjust the figures.
If the exceptional item is a one-off (non-recurring) event, it may temporarily boost earnings, but it is not sustainable. If the exceptional item contributes less than 5% of profit, an adjustment may not be necessary, as the impact is small. However, if the exceptional item makes up a significant portion of earnings, the reported earnings will be inflated. This can lead to an overstated intrinsic value, even though the company’s true intrinsic value is actually much lower.
As a result, you may think you are buying the company at an undervalued price, but in reality, you may be overpaying. Therefore, if the exceptional item is a large percentage of earnings, it is better to adjust the figures.
Casey Goh
replied 6 months ago Thanks Victor. Makes sense.
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