Operating vs Non-Operating Income: Difference and Comparison

One of the most important goals of a business is to earn profitable income. The business’s income represents a business’s financial status in the bigger picture.

Income generated by a business is of two types including Operating and Non-Operating Income.

Key Takeaways

  1. Operating income arises from a company’s core business operations, such as sales revenue and cost of goods sold.
  2. Non-operating income results from sources unrelated to a company’s primary business activities like investments or sale of assets.
  3. Investors and analysts use the operating income to evaluate a company’s profitability and efficiency, while non-operating income provides insight into supplementary revenue streams.

Operating vs Non-Operating Income

Operating income is the full profit or income which a company or organization earns only through the primary operations and activities of the organization. Non-Operating income is the type of profit or income that is gotten through external operations done outside the company’s business.

Operating vs Non Operating Income

Operating Income is the total income or profit the company earns from its primary business. The operating income of the business is every company’s basic profit.

In the income statement, operating income is always stated before the non-operating income.

Non-Operating Income is defined as the total income or profit of the company earned other than its primary business. Income on interests, rentals, dividends, etc., are some common forms of non-operating income.

Unlike operating income, non-operating income is not earned through small-scale businesses.

Comparison Table

Parameters of ComparisonOperating IncomeNon-Operating Income
SourceCore operations of the business.Anything other than the primary business.
CalculationTotal revenue – Gross income – Operating expenses Non-operating revenue – Non-operating expenses.
Management Vital in management and administration.Not considered for long-term management.
DependencyThe company is highly dependent on it.The company is not dependent on it.
PortionIt accounts for most of the company’s income.It accounts for only a small portion of income.

What is Operating Income?

Operating Income is the total income or profit the company earns from its primary business. The business’s operating income is every company’s basic profit and contributes to the majority of the share of the total income.

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Operating income is shown on the income statement for various reasons such as taxes, debts, security, etc.

The company’s overall financial status depends on operating income. Since operating income is mostly large in number, it is also the most crucial of finances under administration.

Furthermore, operating income plays a vital role in the company’s decision-making and future management plans because the company’s operating income at present will contribute to investments in the future for the expansion of the business.

Operating income does not consider taxes, interest, or any other financial charges; hence, it is not the same as the resultant profit.

While a high operating income is mostly an indication of good profitability, the resultant profit might be much less.

For example, if a business is doing well and has a high operating income but has to spend a portion of its income on outstanding debts, the profit will be much less.

The final operating income of a company’s business is calculated after the deduction of operating expenses. These include selling, depreciation, and other administrative expenses.

What is Non-Operating Income?

Non-Operating Income is defined as the total income or profit of the company earned other than its primary business. Income on interests, rentals, dividends, etc., are some common forms of non-operating income.

Non-operating income is also displayed below operating income on the income statement.

The company’s overall financial status does not depend on its non-operating income.

The non-operating income shares only a small portion of the total income; hence, it is not considered when deciding crucial management plans.

A very low-income tax is charged from non-operating incomes as the amount is less. Hence, non-operating income does contribute to the resultant profit of the business.

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Separation of non-operating income from the operating income is a crucial step to only understanding the primary business’s financial status. It provides a much clearer picture of how much revenue is turning into profit.

However, not all businesses produce non-operating income. Businesses under large-scale companies only can produce extra income. Most small-scale businesses rely only on operating incomes.

The final non-operating income is calculated after the reduction of common small-scale expenses. These expenses include amortization, lawsuit settlements, selling assets, etc.

Main Differences Between Operating and Non-Operating Income

  1. Operating income is produced from the company’s primary business, whereas non-operating income is produced from anything other than primary businesses.
  2. The company’s financial status is decided by its operating income rather than non-operating income.
  3. Operating income is earned by all businesses, whereas small-scale businesses do not earn non-operating income.
  4. Operating income is vital in the company’s decision-making and management, whereas non-operating is not considered for long-term management.
  5. Operating income is a large portion of the total income, whereas non-operating income is a very small portion of the whole.
References
  1. https://link.springer.com/article/10.1023/A:1027328418571
  2. https://www.sciencedirect.com/science/article/pii/S0897366004170062

Last Updated : 13 July, 2023

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10 thoughts on “Operating vs Non-Operating Income: Difference and Comparison”

  1. The article’s explanation of how operating and non-operating income are treated in the context of a company’s financial statements is very informative and helps to make sense of these concepts.

    Reply
    • I agree, the examples are very helpful in understanding the practical applications of operating and non-operating income.

      Reply
  2. This article provides an in-depth analysis of operating vs. non-operating income. It’s helpful to understand how these types of income contribute to a company’s financial status and decision-making.

    Reply
  3. I find the breakdown of the main differences between operating and non-operating income to be particularly enlightening. It’s a valuable resource for anyone wishing to understand these concepts better.

    Reply
  4. The comparison table and detailed explanations provide an excellent overview of the key differences between operating and non-operating income.

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  5. The references provided give credibility to the information presented in this article and indicate a deeper level of analysis on the topic.

    Reply
  6. I really value all the detailed information given in this article. The division between operating and non-operating income and the importance of each one for understanding a business’s profitability is explained very clearly.

    Reply
  7. The distinction between operating and non-operating income is very important and this article does a great job of highlighting the significance of both in evaluating a business’s financial performance.

    Reply

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