What Are One-Time Items?
A one-time item is a gain, loss, or expense recorded on the income statement that is nonrecurring in nature, thus not reflective of a company’s routine business operations. To accurately assess a company’s operational performance, analysts and investors often exclude one-time items. Typically, many one-time items negatively impact earnings, but some can boost earnings for the reporting period.
Key Takeaways
- A one-time item refers to a nonrecurring gain, loss, or expense in the income statement.
- It is not part of a company’s regular business activities.
- Analysts and investors usually exclude one-time items to evaluate a company’s core performance accurately.
Exploring One-Time Items
One-time items are documented under operating expenses or below earnings before interest and taxes (EBIT). EBIT measures a company’s profitability by excluding interest and taxes. Conversely, net income includes all costs and revenues and sits at the bottom of the income statement.
A one-time item, like the sale of an asset, can inflate net income for a specific period. These items are also referred to as unusual items or nonrecurring items.
Types of One-Time Items
Financial statements might list various types of one-time items, such as:
- Restructuring charges
- Asset impairment or write-offs
- Loss from discontinued operations
- Loss from early debt retirement
- Merger and divestiture-related costs
- Gain or loss from asset sales
- Extraordinary legal costs
- Natural disaster damage costs
- Accounting policy change charges
Importance of Transparency with One-Time Items
It is crucial to report one-time items separately to ensure transparent financial reporting. This practice helps investors and analysts distinguish between charges or gains that are core operational revenue and those that are nonrecurring.
Financial transparency aids investors, analysts, and creditors in assessing the company’s performance. Creditors, for example, need to know whether a company’s revenue stems from its core business operations to assess financial covenants.
Real World Example: One-Time Item at GE
A notable example is General Electric Corporation (GE), which operates in multiple industries, including aviation and healthcare. The company’s financial restructuring and subsequent sale of its BioPharma division in Q1 2020 resulted in significant one-time gains listed in the income statement.
Income Statement Breakdown
GE highlighted $6.87 billion under Other Income for the quarter. The details were explained in Note 23 of their financial statements, revealing a one-time gain of $12.37 billion from the BioPharma sale, offset by a related $5.63 billion investment income loss.
Detailed Notes Section
In the notes section, Note 23 detailed how $12.37 billion was derived from the business sale, and after significant loss adjustments, the net gain was reported as $6.87 billion in Other Income.
Since one-time items can distort a company’s financial performance, it is essential to thoroughly examine the footnotes section of financial statements.
Related Terms: nonrecurring items, unusual items, EBIT, net income
References
- GE. “Investor Relations”.
- GE. “Form 10-Q”.
- GE. “Form 10-Q”, Page 35.
- GE. “Form 10-Q”, Page 74.
