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• It is common to treat items as nonrecurring even though they may appear with some
frequency in the income statement. However, these items would usually be very irregular in
terms of their amount as well as whether they are revenues and gains or expenses and losses.
• The key question to pose in making the nonrecurring judgment is: Will underlying trends
in operating performance be obscured if the item remains in earnings?
• Some material nonrecurring items will be separately disclosed on the face of the income
statement. However, a substantial number will be disclosed in other statements and locations. It is
typically necessary to extend the search for nonrecurring items well beyond the income
statement.
• In response to limitations on the time available for a whole range of important activities, an
efficient and abbreviated search sequence is presented in this chapter and illustrated with a
comprehensive case example. While a comprehensive review of the complete financial reporting
is the gold standard, reliable information on sustainable earnings can typically be developed
while employing only a subset of reported financial information.
Downloadable Resources for this chapter available at
www.wiley.com/go/portablembainfinance
Exhibit 3.23: Adjustment Worksheet for Sustainable Earnings Base
Exhibit 3.38: Adjustment Worksheet for Sustainable Earnings Base, Pfizer, Inc.
Internet Links
Annual Reports Referenced in the Chapter
Abbott Laboratories (2007)