All-Inclusive Income Concept

  

Categories: Banking, Investing

Sometimes companies face expensive one-time charges. This can include things like costs associated with layoffs or a major expansion, or expenses related to a merger or the aftermath of a natural disaster. These one-time events can be positive as well. Say, a one-time tax refund or cash received from selling a subsidiary.

In the all-inclusive income concept, all these one-time events get counted when the company reports it financial results. This might seem like the obvious way to do things, but it can lead to some miscommunications.

A company that closed a merger might report a loss for that quarter due to charges associated with buying the other company. The one-quarter loss might give the knee-jerk appearance that the business faces problems. However, underlying operations remain strong and, in fact, the merger is expected to accelerate growth.

For this reason, many companies provide multiple earnings figures. One will conform to the all-inclusive concept. Another will provide a figure excluding one-time items, allowing investors to judge its underlying business more directly.

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Finance: What is Earnings Quality?50 Views

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Finance allah shmoop What is earnings quality Well it's just

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math right Whatever Dot com just produced a dollar thirty

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two in earnings One hundred thirty two cents of wall

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street Love and profit How can there be a quality

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to that number The number is a number right Well

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yes but rather there are different qualities of earnings What

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if we told you that one hundred percent of whatever

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dot coms earnings came from Adsit sold tto forty thousand

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different buyers because its website was just that popular All

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of the growth came intrinsically meaning that users just loved

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using the site and nothing meaningful changed on their balance

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sheet or wall street Fancy engineers doing creative clever things

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with the selling of money Other than that the cash

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account went up because dead profits and they kept him

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okay Those air very high quality earnings Really sure about

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that C we threw a curveball in there We do

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that all the time All right Well what if we

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told you that seventy percent of their ad sales came

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from a subsidiary in china and were all collected in

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our m b the chinese currency and that in this

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quarter well that the chinese currency appreciated thirty eight percent

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relative to the dollar Well essentially all of their big

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growth The big growth that we thought was such high

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quality earnings came because the chinese currency did well not

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because their business did all that well so wait Had

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the chinese currency just been flat the company wouldn't have

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earned anything close to a dollar thirty to seventy percent

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of the sales and almost forty percent of currency gain

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there Well it means that the company happened to have

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a lot of sails in a country with a fast

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appreciating currency It wasn't necessarily a direct reflection that the

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company was doing so well and had such high quality

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earnings Yeah it's great that they were in a hot

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market and highly appreciating currency but if the currency hadn't

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gone up so much relative to the u s dollar

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in which they report their earnings toe wall street while

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the real urn things end of the company would have

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been more like a dollar maybe less so that it

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be low quality earnings What about high quality earnings Well

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really simply you said you'd sell three hundred tractors this

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quarter the street thought you'd sell three hundred ten You

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actually sold three hundred twenty you said margins would be

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twenty percent The street thought they'd be twenty two percent

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and they actually were twenty five percent You said you

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generate twenty million dollars in cash the street thought you

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generate twenty two and you actually did generate twenty five

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million dollars in cash High quality financial results Simple You

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just did your core business Selling tractors well Quality earnings 00:02:41.233 --> [endTime] quality tractors

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Finance: What are normalized earnings?
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Normalized earnings are, more or less, the average of what you typically earn. Picture a bell curve. Zoom in on the middle of it. There you go.

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