Loading the player...

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.

RELATED TERMS
  1. Non-Operating Expense

    A non-operating expense is an expense incurred by a business ...
  2. Operating Income

    Operating income is the amount of money a company generates from ...
  3. Income Statement

    An income statement is one of the three major financial statements ...
  4. Operating Income Before Depreciation ...

    Operating Income Before Depreciation And Amortization is a measure ...
  5. Operating Profit

    Operating profit is the profit from a firm's core business operations, ...
  6. Income Investment Company

    An income investment company manages portfolios of income-generating ...
Related Articles
  1. Personal Finance

    Good News! Americans Are Earning More

    After years in the doldrums, incomes are up – and not just for the 1%. Here's who's benefiting.
  2. Investing

    Is Net Income The Same As Profit?

    Net income and profit both deal with positive cash flow, but there are important differences between the two concepts.
  3. Investing

    Cash flow statements: Reviewing cash flow from operations

    Discover why cash flow from operating activities is significant to businesses, and learn the direct and indirect methods for calculating it.
  4. Investing

    What is the Income Effect?

    In economics, the income effect is the change in the consumption of goods caused by a change in income, whether income goes up or down.
  5. Managing Wealth

    How Will Your Investment Make Money?

    Discover the basic types of investment income and which asset classes pay them.
  6. Investing

    Creative Accounting: When It's Too Good to Be True

    Accounting has matured, but there are still plenty of ways companies disguise financial results.
  7. Investing

    Top Income Investing Strategies for 2016

    Dividend paying stocks and equity income funds are two ways to get yield out of your investments this year.
  8. Taxes

    5 Tax-Efficient Portfolio Tips for High Income Earners

    High income earners can use these tips to make their portfolio more tax-efficient.
  9. Managing Wealth

    It's Not Just Trump: Meet the HINTs (High Income, No Taxes)

    Donald Trump may be the most flamboyant example, but so many affluent Americans don't pay taxes that the IRS even has a nickname for them.
  10. Managing Wealth

    Who's Getting Richer? Hardly Anyone

    Federal 'economic gains' mask the truth: Most Americans are doing worse, with average incomes in 2014 smaller than in 2000. Call it upward redistribution.
RELATED FAQS
  1. How do operating income and net income differ?

    Operating income and net income both show the income earned by a company, but they are distinctly different ways of expressing ... Read Answer >>
  2. How do operating income and revenue differ?

    Revenue and operating income have different deductions and credits involved in their calculations and both are essential ... Read Answer >>
  3. What are the income statement presentation formats and what industries use them?

    Learn about two styles of income statements: the single-step method and multi-step method. Determine which types of businesses ... Read Answer >>
  4. How Is EBIT and operating income different?

    Operating income and EBIT show a company's profitability and are typically synonymous with each other. However, there are ... Read Answer >>
  5. What is the difference between gross income and earned income?

    The difference between earned income and gross income is an important one come tax time. Find out how the IRS uses both to ... Read Answer >>
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center