Income includes rents, dividend, and profits from a business. Apply the following adjustments when calculating your income (in the case of a business, use five-year average after-tax profits):
- Increase earnings if salaries were too high; reduce earnings if salaries were too low.
- Add back bonuses paid to stockholder-employees and excessive rents paid to shareholders.
- Reduce earnings if rents paid to shareholders were less than what was reasonable in the market.
- Exclude non-recurring income or expense items.
- Make appropriate adjustments for excessive depreciation, significant changes in accounting procedures, widely fluctuating profits, or abnormally inflated (or deflated) earnings.
- Weight the average to receive a more accurate assessment of the company's prospects if a strong upward or downward earnings trend occur.