Posted in Finance, Accounting and Economics Terms, Total Reads: 746
Definition: Normalized Financial Statements
Normalized financial statements are financial statements which are used for the comparison of various businesses or a single business over a period of time. This comparison of overtime as well as over other businesses is facilitated due to the fact that normalizing excludes the financial events which don’t incorporate the core functionality of the business.
Further, the statements are adjusted for the non-economic profit, non-operating assets/ liabilities and other anomalies to facilitate standard comparison on a same platform to reflect normal affairs of the organization. For e.g., a company ABC is selling a building and gains profit from the sale. This results in huge profit for the same year.
However, it is to be understood that the sale is not repeatable and is a one-time, non-reoccurring gain. Hence, the item of building sale doesn’t go into the income statement. It is taken out because it doesn’t reflect the core operation of business and is useful at the time of selling the business/ financing.