In preparing a DCF valuation, you often use the current EBIT as a base to arrive at future cash flows. However, EBIT includes all income and expenses that the company has encountered. This includes items that are regular and recurring and those that are irregular and may not occur. When we are valuing a company, we only what to know what the cash flows are likely to be in the future. Only cash flows that we can expect to occur again from today onward provide us value. Therefore, the EBIT must reflect only items that you will expect in the future. And so, you will remove any line items that you do not expect to see in the future. These include both positive and negative events. For example, you will remove:
Nonrecurring: Items that are one off in nature must be removed. Examples include lawsuit, penalties, acquisition costs, restructuring costs, etc.
Temporary items include items are likely to reverse in time. For example tax assets and liabilities, exchange rate gains and losses, gains and losses of market value changes in non operating assets, etc.