Non-operating income

(noun)

Non-operating income, in accounting and finance, is gains or losses from sources not related to the typical activities of the business or organization. Non-operating income can include gains or losses from investments, property or asset sales, currency exchange, and other atypical gains or losses.

Examples of Non-operating income in the following topics:

  • Basic Earning Power (BEP) Ratio

    • The purpose of BEP is to determine how effectively a firm uses its assets to generate income.
    • This may seem remarkably similar to the return on assets ratio (ROA), which is operating income divided by total assets.
    • EBIT, or earnings before interest and taxes, is a measure of how much money a company makes, but is not necessarily the same as operating income:
    • The distinction between EBIT and Operating Income is non-operating income.
    • Since EBIT includes non-operating income (such as dividends paid on the stock a company holds of another), it is a more inclusive way to measure the actual income of a company.

  • Times-Interest-Earned Ratio

    • Interest Charges = Traditionally "charges" refers to interest expense found on the income statement.
    • EBIT = Earnings Before Interest and Taxes, also called operating profit or operating income.
    • EBIT is a measure of a firm's profit that excludes interest and income tax expenses.
    • It is the difference between operating revenues and operating expenses.
    • When a firm does not have non-operating income, then operating income is sometimes used as a synonym for EBIT and operating profit.

  • Operating Margin

    • The operating margin is a ratio that determines how much money a company is actually making in profit and equals operating income divided by revenue.
    • It is found by dividing operating income by revenue, where operating income is revenue minus operating expenses .
    • That means that it does not include things like interest and income tax expenses.
    • Since non-operating incomes and expenses can significantly affect the financial well-being of a company, the operating margin is not the only measurement that investors scrutinize.
    • The operating margin is found by dividing net operating income by total revenue.

  • Elements of the Income Statement

    • First, operating expenses are subtracted from gross profit.
    • This yields income from operations.
    • The operating section includes revenue and expenses.
    • The non-operating section includes revenues and gains from non- primary business activities (such as rent or patent income); expenses or losses not related to primary business operations (such as foreign exchange losses); gains that are either unusual or infrequent, but not both; finance costs (costs of borrowing, such as interest expense); and income tax expense.
    • In essence, if an activity is not a part of making or selling the products or services, but still affects the income of the business, it is a non-operating revenue or expense.

  • Extraordinary Gains and Losses

    • Extra gains or losses are nonrecurring, onetime, unusual, non-operating gains or losses that are recorded by a business during the period.
    • They are nonrecurring, onetime, unusual, non-operating gains, or losses that are recorded by a business during the period.
    • (IAS 1.87) The amount of each of these gains or losses, net of the income tax effect, is reported separately in the income statement.
    • Net income is reported before and after these gains and losses.
    • This income statement is a very brief example prepared in accordance with IFRS; no extraordinary items are presented.

  • Components of the Statement of Cash Flows

    • The cash flow statement has 3 parts: operating, investing, and financing activities.
    • There can also be a disclosure of non-cash activities.
    • In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
    • The statement captures both the current operating results and the accompanying changes in the balance sheet and income statement.
    • Non-cash financing activities may include leasing to purchase an asset, converting debt to equity, exchanging non-cash assets or liabilities for other non-cash assets or liabilities, and issuing shares in exchange for assets.

  • Income Statements

    • Income statement (also referred to as profit and loss statement [P&L]), revenue statement, a statement of financial performance, an earnings statement, an operating statement, or statement of operations) is a company's financial statement.
    • It then calculates operating expenses and, when deducted from the gross profit, yields income from operations.
    • Adding to income from operations is the difference of other revenues and other expenses.
    • When combined with income from operations, this yields income before taxes.
    • SGA is usually understood as a major portion of non-production related costs, in contrast to production costs such as direct labour.

  • Individual Taxes

    • In the United States, there are an assortment of federal, state, local, and special purpose taxes that are imposed by such jurisdictions on individuals in order to finance government operations.
    • Taxes based on income are imposed at the federal, most state, and some local levels.
    • Income tax is levied on the total income of the individual, less deductions, reducing an individual's taxable income, and credits, a dollar-for-dollar reduction of total tax liability.
    • Federal and many state income tax rates are graduated or progressive–they are higher (graduated) at higher levels of income.
    • State income tax rates vary from 1% to 16%, including local income tax where applicable.

  • Long-Term Approach

    • However, the short-term nature of working capital, as well as the classification of assets and liabilities into current and non-current, has recently come under scrutiny.
    • The 'current' and 'non-current' classification can be seen as defective for describing the operations of a firm because different operations are classified together.
    • The 'current' and 'non-current' classification can also be criticized for its assumption that working capital items are closely related to current operations, and that long-term assets and liabilities are related to the long-term planning functions of the organization.
    • The difficulty of associating working capital with the operating cycle is compounded by the way the concept of the operating cycle is applied in practice.
    • Other statements, particularly the income statement and the cash flow statement, may provide better information regarding expectations of solvency.

  • Pro Forma Income Statement

    • The income statement is a company's financial statement that indicates how the revenue is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or the "bottom line").
    • SGA is usually understood as a major portion of non-production related costs, in contrast to production costs such as direct labour.
    • Other revenues or gains - income from other than primary business activities (e.g. rent, income from patents).
    • Discontinued operations is the most common type of irregular items.
    • Discontinued operations must be shown separately.