A Useful Income Statement

We have heard that the job of an equity analyst is to take what an accountant has produced and fix the mistakes. And while we know that you have been taught basic accounting principles, we should make you aware that there are problems using financial statements when analyzing a company. For example, revenue can be a distorted number. The 25 largest U.S.-based non-financial companies prepare an alternate income statement that they use with investors. A major change is separating revenue into recurring and nonrecurring items. Recurring items are those that regularly occur in the company's business operations. For example, if we are looking at Home Depot, sales of home remodeling supplies are a recurring item. Nonrecurring items are those that are unique and unlikely to be repeated, such as the one-time sale of an asset or an insurance settlement. If we use sales that include nonrecurring items, it will likely give us an incorrect estimate of the company's future sales.