Non-operating income definition
/What is Non-Operating Income?
Non-operating income is any profit or loss generated by activities outside of the core operating activities of a business. The concept is used by outside analysts, who strip away the effects of these items in order to determine the profitability (if any) of a company's core operations. When a company experiences a sudden spike or decline in its reported income, this is likely to have been caused by non-operating income, since core earnings tend to be relatively stable over time.
Examples of Non-Operating Income
Examples of non-operating income include dividend income, asset impairment losses, gains and losses on investments, and gains and losses on foreign exchange transactions.
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The Interpretation of Financial Statements
Timing of Non-Operating Income
Non-operating income is more likely to be a one-time event, such as a loss on asset impairment. However, some types of income, such as dividend income, are of a recurring nature, and yet are still considered to be part of non-operating income.
Fraudulent Use of Non-Operating Income
A business might attempt to use non-operating income to mask poor operational results. For example, the recipient of a round of funding could invest the cash and generate such a large amount of interest income that it is the largest part of total earnings reported; this is especially common for a startup business that has little operating income. Some less ethical organizations try to characterize their non-operating income as operating income in order to mislead investors about how well their core operations are functioning.
Presentation of Non-Operating Income
Non-operating income is itemized at the bottom of the income statement, after the operating profit line item.