Adjusted EPS
Adjusted earnings per share refers to the indicator obtained by adjusting the original earnings per share when calculating the earnings per share of a company. This adjustment typically includes the impact of some non-recurring items, such as restructuring costs, impairment losses, etc. Adjusted earnings per share can more accurately reflect the operating conditions and profitability of a company.
Definition: Adjusted Earnings Per Share (Adjusted EPS) refers to the metric obtained by adjusting the original Earnings Per Share (EPS) to exclude the impact of non-recurring items such as restructuring costs, impairment losses, etc. Adjusted EPS provides a more accurate reflection of a company's operating performance and profitability.
Origin: The concept of Adjusted EPS originated in the late 20th century as the complexity of corporate financial statements increased. Investors and analysts needed a more accurate metric to assess a company's true profitability, especially in the context of economic fluctuations and frequent corporate restructurings, where traditional EPS could be significantly affected by one-time items.
Categories and Characteristics: Adjusted EPS can be categorized into the following types:
- Basic Adjusted EPS: EPS adjusted to exclude non-recurring items such as restructuring costs and asset impairments.
- Diluted Adjusted EPS: Adjusted EPS that also considers potential dilution factors such as convertible bonds and stock options.
Specific Cases:
- Case 1: A company reported an EPS of $2.50 in 2023, which included a one-time restructuring cost of $0.30 and an asset impairment loss of $0.20. The adjusted EPS is $3.00 ($2.50 + $0.30 + $0.20), providing a more accurate reflection of the company's operating performance.
- Case 2: Another company reported an EPS of $1.80 in 2023, but this included a one-time gain of $0.50 from the sale of a non-core business. The adjusted EPS is $1.30 ($1.80 - $0.50), more accurately reflecting the company's ongoing profitability.
Common Questions:
- Why use Adjusted EPS? Adjusted EPS excludes the impact of non-recurring items, providing a clearer indicator of a company's profitability.
- Is Adjusted EPS always higher than the original EPS? Not necessarily. Adjusted EPS can be higher or lower than the original EPS, depending on the nature and amount of the adjustments.
