non-operating

Examples of non-operating in the following topics:

• Basic Earning Power (BEP) Ratio

  • 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.

• 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.
  • In addition to evaluating the regular stream of sales and expenses that produce operating profit, investors also have to factor into their profit performance analysis the perturbations of these irregular gains and losses reported by a business.
  • Write down and write off of receivables and inventory are not extraordinary, because they relate to normal business operational activities.They would be considered extraordinary, however, if they resulted from an Act of God (e.g., casualty loss arising from an earthquake) or governmental expropriation.

• Times-Interest-Earned Ratio

  • EBIT = Earnings Before Interest and Taxes, also called operating profit or operating income.
  • 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.
  • The EBITDA of a company provides insight on the operational profitability of the business.
  • When the interest coverage ratio is smaller than 1, the company is not generating enough cash from its operations EBIT to meet its interest obligations.

• 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.

• 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 .
  • Furthermore, the operating margin is simply revenue.
  • 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.

• Other Expenses

  • SGA is usually understood as a major portion of non-production related costs, in contrast to production costs such as direct labor.
  • General expenses- general operating expenses and taxes that are directly related to the general operation of the company, but don't relate to the other two categories.
  • Discontinued operations are the most common type of irregular items.
  • Discontinued operations must be shown separately.
  • Operational expenses and non-operational expenses are the main cash outflow of a business.

• 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.

• 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.
  • 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.
  • Statement of cash flows includes cash flows from operating, financing and investing activities.
  • Recognize how operating, investing and financing activities influence the statement of cash flows

• 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.
  • Above is a flow chart for a sample operating cycle for a firm.

• Understanding the Needs of the Business

  • Working capital needs will vary depending on the type of the business and its operational requirements.
  • Working capital is a financial metric which represents the operating liquidity available to a business.
  • Working capital is considered a part of operating capital along with fixed assets, such as plant and equipment.
  • Sufficient working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term and long-term debt and take care of upcoming operational expenses.
  • Inventory is a special case in which even non-financial managers have a stage.