Work out underlying earnings and explain them, set out ways to normalise earnings per share (EPS), and compute normalised EPS

Reported earnings often include non-recurring items, such as restructuring charges, gains on asset sales and impairments, that distort a multiple. Underlying earnings, also called core or persistent earnings, strip these out to show the repeatable level. For cyclical companies even underlying earnings swing with the cycle, so analysts normalise EPS. The historical average EPS method averages EPS over a full cycle. The average return on equity method multiplies the average ROE over the cycle by current book value per share. The ROE method reflects changes in the company's size, so it is generally preferred when the company has grown during the cycle. The trap is excluding a charge management calls one-off when similar charges recur almost every year.