Today, I want to talk about the importance of looking of at normalized earnings per share when analyzing a company's financial statement.
"At Berkshire what counts most are increases in our normalized per-share earning power. That metric is what Charlie Munger, my long-time partner, and I focus on – and we hope that you do, too." - Warren Buffett in his 2017 shareholder letter
So what exactly is normalized earnings per share?
It is reported earnings by the company that has already been adjusted to exclude any one-time gains or losses or any other abnormal events that skew the results of the company due to the abnormal one-time income or expenses.
Why are normalized earnings per share important?
It helps to predict in a more accurate or truer picture of the future earnings per share of the company. This will allow us as an investor who looks at the long-term view to make a more accurate judgment.
Here's an example of GameStop's earnings per share in 2017 (reported vs normalized):
Reported earnings per share: $0.34
Normalized earnings per share: $3.34 excluding the one-time impairment charges from their technology brand segment
So based on Warren Buffett's suggestion, all of us should definitely look at the normalized earnings per share figure instead of the reported one.