Non-operating expense definition
/What is a Non-Operating Expense?
A non-operating expense is an expense incurred by an organization that does not relate to its main activity. When analyzing the results of a business, you can subtract these expenses from income, to estimate the maximum potential earnings of the firm. For example, a business would likely list a lawsuit payout as a non-operating expense, so that investors can still see the results of its core operations before the presumably one-time lawsuit charge.
Presentation of Non-Operating Expenses
Non-operating expenses are usually stated on the income statement after the results from continuing operations. Readers of the financials typically conduct analyses of an organization’s core business, which excludes non-operating expenses. Consequently, this form of presentation works well with their analysis goals. A sample presentation of this format appears in the following exhibit.
Some companies like to strip out non-operating expenses when reporting their results to investors. Doing so presents the most optimistic view of how a business is performing, rather than the most realistic one.
Examples of Non-Operating Expenses
Examples of non-operating expenses are interest expense, derivatives expense, lawsuit settlement expense, loss on disposition of assets, obsolete inventory charges, and restructuring expense.
FAQs
Can Nonoperating Expenses Be Recurring?
Nonoperating expenses can be recurring if they arise regularly from activities outside a company’s core operations. For example, interest expense on long-term debt is a common recurring nonoperating cost. Although these expenses occur consistently, they are still classified as nonoperating because they are not directly tied to the company’s main business functions.
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