Did You Ever Look For Adjustments Closely? A hands-on approach
Other operating income needs to be analyzed diligently
Other operating income comprises non-business-related income, e.g. from the sale of assets or reversals of provisions. To name a few.
Typically, many items reported under other operating income can be normalized.
In the following article, I am going to guide you through the process of analyzing other operating income.
Understanding other operating income means understanding the items being reported there. Oftentimes, firms report large amounts cumulated under “other”. In this case, request a split to understand its components.
During the analysis, check for out-of-period or non-recurring items and also discuss with Management to which extend these items represent recurring income. The reason for that is the consistency between historical and projected financials. If an item is completely non-recurring, remove other operating income and do not include it into the company’s business plan. Only include the recurring portion to show a sustainable picture.
- Understand which items comprise other operating income
- Adjust for the non-recurring portion
- Check to which extend the projected financials include other operating income
Other operating income offers a rich set of potential adjustment items. Being able to understand other operating income is important to get a sustainable view of the company’s financials.