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What is 'Non-Operating Income'

Non-operating income is the portion of an organization's income that is derived from activities not related to its core business operations. Non-operating income can include such items as dividend income, capital gains and losses from investments, gains or losses incurred by foreign exchange, asset write-downs, and other non-operating revenues and expenses.

BREAKING DOWN 'Non-Operating Income'

Non-operating income, also referred to as incidental or peripheral income, is considered to be earnings that do not occur on a regular basis, and is completely separate from operating income. When analyzing a company's performance over a recent quarter or year, it is important to differentiate between operating and non-operating profit and loss. For example, if a company's bottom-line earnings per share are reported to be markedly higher this year than last year but are due to a one-time gain on investment securities, these should be excluded from the firm's operating income in order to gain a better measure of how much the company's operations actually grew during the year.

Reasons to Look at Non-Operating Income

Since non-operating income is not recurring, it is usually not included in the measurement of company success. Using a retail store as an example, the company's main operations are the purchasing and selling of merchandise, which requires a lot of cash on hand and liquid assets. Sometimes, a retailer chooses to invest its idle cash on hand in order to put its money to work. If a retail store, in this example, invests $10,000 in the stock market, and in a one-month period earns 5% in capital gains, the $500 ($10,000 * 0.05) would be considered non-operating income. When a person sets out to analyze this retail company, the $500 would be discounted as earnings, because it can't be relied on as continuous income over the long term.

Using a much larger example, there are many occasions when a company earns a significant amount of income from the sale of a large piece of equipment or from a wholly owned subsidiary, which significantly alters its earnings. If a technology company sells or spins off one of its divisions for $400 million in cash and stock, the proceeds from the sale are considered non-operating income. If the technology company earns $1 billion in income in a year, it's easy to see that the additional $400 million will increase company earnings by 40%. To an investor, a sharp bump in earnings like this makes the company look like a very attractive investment. However, since the sale cannot be replicated or duplicated, it can't be considered operating income and should be removed from performance analysis.

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