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Basic Question 4 of 6
Which statement(s) is (are) true regarding earnings normalization?
II. Unlike overstated expenses, understated expenses should not be adjusted in the process.
I. With normalizing adjustments, analysts attempt to adjust private company earnings to a reasonably well-run, public company equivalent basis.
II. Unlike overstated expenses, understated expenses should not be adjusted in the process.
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Learning Outcome Statements
explain the income, market, and asset-based approaches to private company valuation and factors relevant to the selection of each approach;
explain cash flow estimation issues related to private companies and adjustments required to estimate normalized earnings;
CFA® 2025 Level II Curriculum, Volume 4, Module 25.