Trading Comps question

Hi all, have some difficulties understanding the adjustments required of these two statements in building a trading comps model.

Statement 1) The 20XX results included a one - time credit to income of $49 million, which was principally attributable to eliminating the remaining state tax net operating loss valuation allowances as a result of the increased likelihood of the Company’s ability to utilize the related net operating loss tax assets.

Statement 2) The sale resulted in a pre-tax gain of $26 million and a loss of $7 million on an after- tax basis.

Question for Statement 1)
Given that it is one-time, the effects of this must be removed. The answer I have states that given that it is after-tax, the amounts would be adjusted against net income. However, given that it is after-tax, EBIT would not be affected.

Just wondering why don't we take the 49 (after-tax) and regross it to get the before tax figure and then adjust it against EBIT?

Question for Statement 2)
Once again this is one-time and the effects must be removed. The answer now states that the effects have to be removed against EBIT and Net Income.

How do I differentiate when would I need to adjust net income only? And when should I adjust against net income AND EBIT?

Many thanks!

 

Think about what's already below/above EBIT. You're trying to get a normalized EBIT figure so you exclude one time gains/expenses above EBIT. If it's below EBIT, then you don't need to worry about it since EBIT is already excluding it (answer to your Q1).

In Q2, the $26M is above EBIT, so you have to net it out to get normalized EBIT, while the $7M is above Net Income , so you have to net it out to get normalized NI.

 
CHItizen:

To answer Q1 another way, why would I need to get the pre-tax impact to EBIT if I'm just going to net out that same amount anyway?

Thanks for your response. But I would need to get the pre-tax impact in order to get the corrected EBIT to compute EBITDA. Am I right in saying so?

Appreciate your help.

 

Praesentium illo corrupti architecto repellendus necessitatibus voluptas. Eum occaecati omnis sed ab. Quidem deleniti rerum occaecati quo facere.

Career Advancement Opportunities

April 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. New 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

April 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

April 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

April 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (87) $260
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Secyh62's picture
Secyh62
99.0
5
kanon's picture
kanon
98.9
6
GameTheory's picture
GameTheory
98.9
7
CompBanker's picture
CompBanker
98.9
8
dosk17's picture
dosk17
98.9
9
numi's picture
numi
98.8
10
Kenny_Powers_CFA's picture
Kenny_Powers_CFA
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”