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.