Cash flow and earnings quality
Normalising earnings
Strip out one-off items to see the underlying trend — then draw the conclusion on Rawdah.
Learning objectives
- Identify genuinely non-recurring items
- Calculate adjusted EBITDA and adjusted EBITDA margin
- Calculate normalised net income after the tax effect of adjustments
- Conclude on a company's performance using normalised figures
Reported profit mixes the recurring business with events that won't repeat: restructuring, asset sales, legal settlements, store closures. To see the underlying trend — and to value or lend against the business — analysts normalise earnings by removing non-recurring items.
Rawdah's FY2024 operating expenses include a 12.0 store-closure cost disclosed in the notes as non-recurring. Was the FY2024 margin dip just that one-off? Normalising tells us.
Adjusted EBITDA = Reported EBITDA + non-recurring costs − non-recurring gains Normalised NI = NI + adjustments × (1 − t)
- non-recurring costs
- added back because they reduced reported EBITDA
- t
- the tax rate on the adjustment; here the effective tax rate (tax ÷ profit before tax)
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