Operating and non-operating items

Often times you hear people talk about operating and non-operating items on the income statement. As it is, those can be defined and separate in various ways, but the principles in doing so remain the same. 

Operating items, that is your operating income and expenses are those that relate to the core business of the company, they relate to the performance of the base streams of the company, the base operations and nothing more. It should also be mentioned that items which are part of your operating expenses (and not cost of goods sold which are directly attributable to sales) are also considered part of operating items if they’re related to your everyday running and supporting of the business (i.e. office rent, leasing cars etc.).

Non-operating items on the other hand are such that you don’t need to keep your business running and wouldn’t be expected to need in an ordinary course of business. Examples include all restructuring expenses, obsolescence expenses, write-downs of assets, impairments as well as financial expenses and income, currency exchange gains and losses. Those are something that do occur from time to time, but are normally not treated as a part of your operating items.

So in terms of understanding how your business is ‘operating’, do take the time to consider which expenses (and why not revenues) to include within the measurement and which to ignore.