I am having difficulty deciding whether a company's earnings should be modelled normally or lognormally.
If we consider two arguments:
(i) The earnings of a company are the returns on the assets of the company, therefore we could model them as normally distributed.
(ii) However, in some industries, say if the company is a commodity producer, one could argue the earnings should be lognormally distributed (because the commodities are modelled this way)
What is the most correct way to model this? Say for a commodity producer but also for a non commodity producer (say retail)?
Edit: I fully understand that earnings can be negative therefore one would naturally assume a normal distribution. However, for a commodity producer the revenue will be dependent on a commodity. In a lognormal simulation there will be paths where revenue less costs is negative (there will be both fixed and variable operating costs). In other words there could be negative earnings paths if revenue is modelled lognormally.
Edit 2: Strictly speaking, I am modelling the revenue of a company with the costs being largely fixed.