Don’t Normalise the Norm
Author
Nigel Lake & Daniel Chaitow
Title
Don’t Normalise the Norm: Overcorrecting for underperformance.
Synopsis
Normalisation is an important part of business reporting and valuation. It allows analysts to form a better judgement on how a business is likely to perform going forward, ensuring that historical growth rates, returns and profitability measures are not skewed by white noise aka ‘one off’ items. But often the term ‘one off’ is used as a catch all, used simply to soften the blow of a bad result: Is it a ‘one off’ event for a mining company to experience regulatory hurdles? Is it a ‘one off’ event for a real estate business to experience property value fluctuations? Is it a ‘one off’ event for an agricultural business to experience bad weather? We think not. In fact, for many companies, the most unusual thing is when there are no disruptions to business plans at all.