07 ch 13 - Chapter Thirteen Financial Analysis: The Big...

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Chapter Thirteen – Financial Analysis: The Big Picture (Pages 646-652) I. Sustainable Income a. Net income adjusted for irregular items b. The most likely level of income to be obtained in the future c. Important if users wish to use reported earnings to estimate a company’s value II. Irregular Items a. They are reported net of income taxes on the income statement b. They are generally eliminated to get a good estimate of future sustainable income c. Two types i. Discontinued operations 1. The disposal of a significant component of a business 2. Example: Elimination of a major class of customers or an entire product line that required a separate division of the company 3. Company reports the gain or loss, net of tax, on the income statement on a line titled “Discontinued operations” immediately after the line “Income before irregular items” ii. Extraordinary items 1. Events and transactions that meet two conditions: a. They are unusual in nature i. The items should be abnormal
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07 ch 13 - Chapter Thirteen Financial Analysis: The Big...

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