Earnings Quality

A DCF built on a manipulated or distorted earnings base is a precise calculation of a wrong number. This step decides what the company actually earns in a normal year, before anything downstream projects it forward.

Disclaimer: Research and educational output only. Not financial advice.

The method (Damodaran's, not the popular one)

Most people normalise by averaging reported earnings over five years. Damodaran gives that method a narrow licence and prefers a different one.