Final answer:
The most appropriate method to calculate a company's normalized EPS in cyclical industries when there have been changes in the company's size is to use a modified version of the basic EPS formula. This formula takes into account the average shares outstanding over the period and adjusts for any changes in size.
Step-by-step explanation:
The most appropriate method to calculate a company's normalized EPS in cyclical industries when there have been changes in the company's size is to use a modified version of the basic EPS formula.
This modified formula takes into account the company's average shares outstanding over the period and adjusts for any changes in size that may impact the earnings per share calculation.
Start by calculating the average number of shares outstanding over the period. This can be done by adding the beginning and ending shares outstanding and dividing by two.
Next, calculate the earnings for the period.
Finally, divide the earnings by the average number of shares outstanding to obtain the normalized EPS.
For example, if a company had beginning shares outstanding of 100,000, ending shares outstanding of 150,000, and earnings of $1,000,000, the average number of shares outstanding would be (100,000 + 150,000) / 2 = 125,000. The normalized EPS would then be $1,000,000 / 125,000 = $8.