Non-operating income

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.

• Introduction to the Income Statement

  • The income statement reflects a company's operating performance.
  • When combined with income from operations, this yields income before taxes.
  • 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.
  • Non-operating income is generally not recurring and is therefore usually excluded or considered separately when evaluating performance over a period of time (e.g. a quarter or year).

• 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 Expenses, Non-Operating Expenses, and Net Income

  • Operating expenses and non operating expenses are deducted from revenue to yield net income.
  • Its counterpart, a capital expenditure, or non operating expense, is the cost of developing or providing non-consumable parts for the product or system.
  • In real estate, operating expenses comprise costs associated with the operation and maintenance of an income-producing property, including property management fees, real estate taxes, insurance, and utilities.
  • Non operating expenses include loan payments, depreciation, and income taxes.
  • Operating expenses, non operating expenses and net income are three key areas of the income statement.

• 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.

• Preparation of the Statement of Cash Flows: Indirect Method

  • The indirect method starts with net-income while adjusting for non-cash transactions and from all cash-based transactions.
  • The indirect method uses net income as a starting point, makes adjustments for all transactions for non-cash items, then adjusts for all cash-based transactions.
  • Expenses with no cash outflows are added back to net income (depreciation and/or amortization expense are the only operating items that have no effect on cash flows in the period);
  • Under the indirect method, since net income is a starting point in measuring cash flows from operating activities, depreciation expenses must be added back to net income.
  • Therefore, cash operating expenses were only $80,000.

• 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.

• Activities of the Business: Financing, Investing, and Operating

  • Activities of the business include operating activities and non-operating activities such as investing activities, and financing activities.
  • In addition to operating activities businesses engage in non-operating activities.
  • Non-operating activities are not related to the day-to-day, ongoing operations of a business.
  • Non-operating cash flows include borrowings, the issuance or purchase of stock, asset sales, dividend payments, and other investment activity.
  • As with operating activities GAAP principles dictate how non-operating items are classified on the statement of cash flows.

• Sample Income Statement

  • It then calculates operating expenses which, when deducted from the gross profit, yield 'income from operations. ' The difference of other revenues and expenses is then applied to the income from operations.
  • When combined with 'income from operations,' this yields 'income before taxes. ' The final step is to deduct taxes, which finally produces the net income for the period measured.
  • SGA is usually understood as a major portion of non-production costs, in contrast to production costs like direct labor.
  • Other revenues or gains: Revenues and gains from non-primary business activities (rent, patent income, goodwill).
  • Discontinued operation is the most common type of irregular item.

• 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.