Operating activities refers to all actions that an organization takes to bring its products and services to

the market on a continuous basis. Non-operating activities are one-time events that affect expenses,
revenues or cash flow but falls out of organization’s core business.

Assets in an organization can be operating or non-operating. Operating assets are the assets obtained
to be utilized in the ongoing operations or an organization; meaning they are required for revenue
generation. Examples of operating assets are prepaid expenses, fixed assets, accounts receivable
inventory, and cash. If there are acceptable intangible assets, like technology licenses required to
manufacture goods, then they are considered as operating assets. On the other hand non-operating
assets are utilized for long-term investments activities, like marketable securities. Assets that are no
longer being utilized for operations, like assets meant to be sold, are not considered as operating assets.
In addition to that, a non-cash asset that is retained for investment purposes, such as an investment
property, is categorized under non-operating asset.

Liabilities can also be operating or non-operating. Non-operating liability refers to the amount owed by
an organization that is not related to the ongoing operations of the business. A non-operating liability
maybe an off-balance-sheet liability or contingent which may happen depending on the outcome of a
future occurrence. A operating liability on the other hand are expenses that organizations pay to
support their daily operations, like what a business pays in accounts payable and income tax.

Operating and non-operating expenses also have difference i.e. Operating expenses are those that are
directly connected with running the business. Note that cost of goods sold is not included under
operating expenses. It includes a variety of expenses used for day-to-day operations with inclusion of
sales and administrative costs. Examples include staff salaries, office salaries, rent, utilities, everyday
repairs on equipment’s, travel expenses related to business activities, commissions on goods sold,
advertising and marketing. Moreover, non-operating expenses are a cost that is indirectly associated to
core business operations. Examples include restructuring costs, payments to settle lawsuits, interest
payments on debt and inventory write-offs

Incomes or loses can also be classified as non-operating or operating. Non-operating income or loss
refers to gains or losses from sources that are not related to the core activities of the organization. It can
be from investments, asset or property sales, currency exchange and any other atypical losses or gains.
In addition, operating income or loss is an accounting figure for measuring amount of profit or loss
realized from the core business operations after reduction of expenses like depreciation, wages and cost
of goods sold.

Investors and other financial statement users need to understand operating and non-operating parts of
corporate activities since it well them determine; Firstly, it will help understand how much of the total
assets are used in the core business of the organization, and know those that are no longer used for day
to day activities of the business? .E.g. those used for long-term investments. Secondly, they will
understand how much revenue of total income of organization is arising from operational activities?
Lastly, is the organization generating income from core business or from only investments made by
them?
In an income statement, profits after tax (PAT) is computed which consists of both non-operating and
operating expenses/incomes. Investors are focused on knowing the net income that the core business
generates since it reflects the full view of business operations only. Therefore better decisions can be
made in respect to core business based on NOPAT.

In du Pont formulae / model,

ROE= Net income/sales x sales/ total assets x total assets/ Average share holder equity
Jory, S., Ngo, T., & Wang, H. (2021). Non‐operating earnings and firm risk. Review of Financial
Economics, 39(1), 95-123.

Antonius, A. (2021). Pengaruh Capital Structure, Good Corporate Governance, Free Cash Flow, dan Audit
Quality terhadap Shareholder Value Creation (Studi pada Perusahaan Sektor Perdagangan, Jasa, dan
Investasi yang Terdaftar di BEI Tahun 2016-2019) (Doctoral dissertation, Universitas Multimedia
Nusantara).