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I realize that the question I ask is very related to accounting but there is no active stackexchange website for this. The question is related to Analysts' recommendation and Earnings Surprise.

Look at the chart of reported EPS and EPS consensus (from analysts' predictions) for the company Biogen Inc on Nasdaq here and the 2017Q3 income statement here. I am also posting snapshots because the info will change with time.

We can see that the actual reported Q3 according to the graph is above 6. When you observe the different reported EPS values in the IS:

  • Earnings Per Share Basic Net: 5.80
  • Earnings Per Share Diluted Net: 5.79
  • EPS Diluted Before Nonrecurring: 6.31

From this information I assume that what is taken into account in the Nasdaq website is the EPS Diluted Before Nonrecurring.

I have several questions here:

  1. Is this 'version' of EPS the 'default' for which predictions by the analysts are made and has this paradigm changed over the course of history?
  2. Are there cases (and/or for what type of companies) this EPS value could be very significantly different from the basic EPS? As far as I understand this could happen when the profit/loss from non-accruing items is too big. Could possibly result even in 'EPS basic' and 'EPS before nonreaccuring' being with different signs? I could use some examples.

enter image description hereI added columns notation myself because otherwise the picture would be too long

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1) Basic EPS: Are the company's earnings to be distributed to shareholders (net income less dividends to preferred stock holders) divided by the number of common shares outstanding

2) Diluted EPS: Here, the analysts take into account that there are possibly securities out there which will or might in the future increase the number of common shares outstanding (for example convertible bonds or options). Therefore, the theoretical number of common shares is expanded (diluted), to give an outlook on earnings that takes that into account. EPS will decrease, as diluted common shares outstanding will equal or be larger than the common shares outstanding.

3) Before Non-recurrings: You will find that an income statement often includes "one-time" items, that analysts do not expect to recur in the future (for example high legal expenses from a law-suit). Such items may bias the fair value of earnings and are therefore often added back into earnings before taxes for valuations and EPS calculations. This is done to represent normal business activity. EPS will most likely increase as non-recurring expenses are added back in.

Usually, various calculations of EPS are provided (in most cases at least EPS and diluted EPS).

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  • $\begingroup$ Thank you. Indeed it makes sense to predict 3) as an analyst since the non-recurring expenses could be hard to predict and possibly inside information would be needed. $\endgroup$ – Veliko Dec 22 '17 at 8:07

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