what are normalized earnings 
normalized earnings are adjusted to remove the effects of seasonality revenue and expenses that are unusual or one time influences normalized earnings help business owners financial analysts and other stakeholders understand a company s true earnings from its normal operations an example of this normalization would be to remove a land sale from a retail firm s financial statements in which a large capital gain was realized as selling products not selling land is the company s real business understanding normalized earningsnormalized earnings represent a company s earnings that omit the effects of nonrecurring charges or gains to better present a company s core business the one off effects of these profits or losses are removed as they can muddy the picture additionally normalized earnings can be used to present a firm s earnings while taking into account seasonal or cyclical sales cycles in short normalized earnings are the most accurate assessment of a company s true financial health and performance many companies incur one off expenses such as large lawyer fees or earn one off gains such as the sale of old equipment in both of these cases even though the costs and revenues are realized and affect the company s short term cash flow they are not indications of the company s long term performance to analyze the firm properly these effects have to be removed examples of normalized earningsthe most common form of earnings normalization occurs when expenses or revenues must be removed or sales cycles must be smoothed when normalizing large one off costs or earnings there are two types of normalization adjustments if for example a company that owns a fleet of trucks decides to sell the depreciating assets and purchase new ones both the earnings and the expenses from the sale are removed to normalize its earnings an accountant or analyst would do this by looking at the company s income statement and removing the money generated from other comprehensive income it would then remove the operating expense or debt financing used to purchase the new trucks another scenario where expenses are removed to normalize a company s earnings is in the event of an acquisition or purchase when this occurs the salary wages and other expenses paid to owners and officers of the company are removed since they won t be part of the new organization the remaining scenario that commonly involves normalizing is dealing with the earnings for companies with sales cycles or seasonality with situations like this earnings are adjusted using a moving average over a number of periods the simplest form of this is an arithmetic average if for example a company earns 100 in january 150 in february and 200 in march and uses a two month moving average its normalized earnings would be 125 for february and 175 for march the advantage of normalized earningsfor investors the biggest advantage to normalized earnings is that it allows for a more accurate comparison between companies common metrics like earnings per share eps can be drastically affected by the period when they are calculated particularly if a significant cost or profit unrelated to the core business occurs in the period by using normalized earnings per share investors can better analyze and compare companies based on the health of their core operations rather than the temporary boost or hit of a one off event 