Unexpected changes in the economy disrupt the efficiency of businesses in their production of goods and services. Businesses incur the fixed costs of their production assets such as factories, machines, and fixed labor costs whether these assets are being used in production or not. During a negative shock to the economy such as the oil embargo or the popping of a speculative bubble; investments are written off, layoff costs are incurred, and factories are closed which causes earnings to have a higher degree of volatility as businesses incur the restructuring costs and write offs to reach efficiency again.
To understand the real long-term earnings power of the business True Value Services Inc relies on the True Earnings measure which equals the reported Earnings excluding irregular items such as earnings from discontinued operations, extraordinary items, unusual gains or losses, and accounting changes. The True Earning measure represents Earnings from normal ongoing operations.