What is a 'Nonrecurring Charge'

A nonrecurring charge is an entry that appears on a company's financial statements for a one-time expense that is unlikely to happen again. A nonrecurring charge is typically explained by the company and an analyst will usually make an adjustment to the income statement when assessing financial performance for a period and valuing the shares on an "adjusted" basis.

BREAKING DOWN 'Nonrecurring Charge'

A nonrecurring charge appears on an income statement and in certain cases on the cash flow statement as well if the charge is non-cash. The company's earnings are correspondingly reduced for the time period shown on the income statement. However, in the management discussion and analysis (MD&A) section the company will try to explain that a particular nonrecurring charge is for a one-time, unusual event, and should not be considered an expense that the company will be exposed to again in the future.

There are numerous examples of nonrecurring charges:

  • restructuring charges inclusive of severance pay and factory closings
  • asset impairment charges or write-offs
  • losses from discontinued operations
  • losses from early retirement of debt
  • M&A or divestiture-related expenses
  • losses from sale of assets
  • abnormal legal costs
  • natural disaster damage costs
  • charges stemming from changes in accounting policy

Adjusting for Nonrecurring Charges

Analysts will add back legitimate expenses that management of a company label as "nonrecurring." If such charges seem to occur with a certain frequency that they actually become recurring, however, then investors will not give management this benefit when assessing financial performance and modeling the valuation of the shares. For example, if restructuring charges are taken every other year by a company, they may be considered part of normal operating expenses. The identification and treatment of nonrecurring charges could also have implications for credit agreement definitions and executive compensation plans. A debt-to-EBITDA covenant, for example, may allow for add-backs of nonrecurring charges to EBITDA in a loan agreement. If nonrecurring charges are not counted against net income in an executive compensation plan, then management may feel at more liberty with taking these charges in a fiscal year.

  1. Nonrecurring Gain Or Loss

    Nonrecurring gain or loss describes a category companies denote ...
  2. Non-Cash Charge

    Non-cash charges are expenses that can be found in a company's ...
  3. One-Time Charge

    A one-time charge is a charge against a company’s earnings that ...
  4. Core Earnings

    Core earnings are derived from a company's main or principal ...
  5. One-Time Item

    A one-time item is a gain, loss or expense on the income statement ...
  6. Restructuring Charge

    A restructuring charge is a one-time cost that must be paid by ...
Related Articles
  1. Investing

    Financial Statement: Extraordinary Vs. Nonrecurring Items

    When it comes to analyzing a company, successful analysts spend considerable time differentiating between accounting items that are likely to recur going forward from those that most likely will ...
  2. Investing

    Detecting Accounting Manipulation

    "One-time charges" and "investment gains" are two strategies companies can use to distort their numbers.
  3. Investing

    The One-Time Expense Warning

    These income statement red flags may not spell a company's downfall. Learn why here.
  4. Investing

    4 Cases When Companies May Deserve a Higher P/E Ratio (AMZN, ZBH)

    Find out why the price-to-earnings ratio is high for some companies. Learn about the impact of growth rates, acquisition speculation and non-recurring charges.
  5. Investing

    Top 8 Ways Companies Cook the Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.
  6. Investing

    ETFs vs. Mutual Funds: The Lowdown on Costs

    Confused about the full range of fees on ETF and mutual funds? Here's a quick guide on fees and expenses.
  7. Investing

    Look For These Red Flags In The Income Statement

    Companies can overstate their revenues and understate their losses to boost investor confidence. Learn how to spot the these red flags in income statements.
  8. Trading

    Fund Costs and Expenses

    How much a fund charges for its services is the most important indicator of how well it will perform.
  1. 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 >>
  2. How are cash purchases recorded on a company's income statement?

    Take a deeper look at the treatment of cash payments on a company's financial statements, including how specific purchases ... Read Answer >>
  3. How do earnings and revenue differ?

    Revenue is the total income earned by a company for selling its goods and services. Earnings are the bottom line on a company's ... Read Answer >>
Trading Center