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Definition: Normalized Earnings
Normalized earnings are used to indicate a company’s true financial health. Sometimes, during the financial year, a company might encounter a one-time income or charge that can considerably affect the company’s profits or losses, which may make the company more or less healthy than what it actually is.
A similar situation might occur due to the seasonal and cyclical pattern of the economy. Thus the earnings of the company after accounting for the influence of the economic ups and downs, and excluding the non-recurring profits and losses are called normalized earnings.
For example, acquisition or amortization costs, litigation expenses, sale or purchase of operating assets are examples of one time income or expense that must be normalized before reporting the net earnings of the company.