INSTITUTO POLITECNICO NACIONAL

ESCUELA SUPERIOR DE COMERCIO Y ADMINISTRACION

UNIDAD TEPEPAN
LINCENCIATURA EN CONTADURIA PÚBLICA
ACADEMIA DE INGLES

FINANCIAL FUNDAMENTALS
SECOND REDING TASK

“Operating income vs non operating income.”

SUMMARY/VOCABULARY
And Personal Commentary.

Student: Rosales García Zurisadai

GROUP: 2CV47 ROOM: B-105

Prof. Carlos Arturo Boerst Gonzáles

April 30th, 2023

 Summary
Operating income vs. Non operating income
To show operating profit in the best possible light, and they sometimes present it as more
representative of the company's recurrent performances. Regardless of what name it comes
under, what the analyst is looking for is the operating figure that is recurrent in nature. It is thus
on this yardstick alone that the analyst must look at income and costs for his assessment.

The most commonly used approach consists of excluding unusual items, as this is understood
under IAS 8, from recurrent profit. While in theory this reflects operating performances that are
more standard and useful for the analyst, non operating income in practice is often denatured by
the inclusion of recurrent items. Similarly, net financial income sometimes contains items that
should more accurately be written down under operations. Below we present some items from
annual reports recently published by European groups.

1. Recurrent capital gains and losses

The yearly disposal of a comparable amount of assets makes the management of a company's
assets an extension of its business and it is no longer to be considered unusual. The results of
these disposals should thus show up under net operating income.
2. Redundancy payments, pensions, etc.
As these are sums that the company pays or pledges to pay each year in one or several sums to
retiring employees, they obviously must be considered as recurrent operating expenses, with the
exception of the fraction resulting from the annual revaluation of future costs, which comes under
financing costs.
3. Discounts
A discount is a price reduction granted when payment is made prior to the date indicated in the
terms of sale, without the buyer or seller having agreed beforehand to early payment. While
discounts are considered a financial item in the financial statement, it seems more logical to put
them under operating costs in the consolidated accounts.To understand this point, let’s look at
how discounted cash flow valuation works
4. Securitisation costs
Securitisation costs, not counting arrangement fees, are equivalent to the difference between the
value of the receivables and the price at which they have been transferred. For transfers with
recourse the cost is equal to the remuneration of the securitisation entity’s capital during the time
until collection. A transfer reduces working capital and thus group debt.
5. The impact of currencies on normal operations
This is the impact of fluctuating exchange rates on the value of operating assets and liabilities
resulting from the company's transactions.
As the impact is directly linked to the company's daily operations, it should, in our view, be
reflected under its operating performance.
6. Cost of hedging operating assets and liabilities
These costs mainly include premiums for options used for hedging. For the same reasons as
before, we feel these are operating costs.
7. Pre-opening costs
Putting these under exceptional costs allows the company to keep costs that it wished to defer or
had to defer, out of its operating results. While these can be considered unusual at the level of a
smaller company or division, they are not unusual for major groups, which, given the diversity of
their businesses, restructure somewhere or another every year, in which case we would advise
booking them under operations.
8. Restructuring costs
Many major groups book significant restructuring costs every year. While these can be considered
unusual at the level of a smaller company or division, they are not unusual for major groups,
which, given the diversity of their businesses, restructure somewhere or another every year, in
which case we would advise booking them under operations.
9. Environmental costs
Whether due to environmental protection codes, upgrades or fines, environment costs are directly
linked to the goods sold, despite the fact that they are decided outside the company.

Lafarge distinguishes between «recurrent operating profit» from «operating profit», which
includes non-recurrent income and costs. This approach has the advantage of reconciling the
normative view that is useful to analysts while reflecting the company's true performances.
 VOCABULARY

ENGLISH WORD ENGLISH DEFINITION SPANISH WORD

1. Profit Money that is earned in trade or business Beneficios
after paying the costs of producing and selling
goods and services
2. Yardstick A fact or standard by which you can judge the Criterio
success or value of something
3. Receivables. Amounts owed by customers to a company at Derechos de cobro
a particular time and not yet paid
4. Pledges A serious or formal promise, especially one to Compromisos
give money or to be a friend, or something
that you give as a sign that you will keep a
promise
5. Employees Someone who is paid to work for someone Empleados
else
6. Codes A system of words, letters, or signs used to Códigos
represent a message in secret form, or a
system of numbers, letters, or signals used to
represent something in a shorter or more
convenient form
7. Environmental Relating to the environment in which people, Medio ambiente
animals, and plants live
8. Exchange The act of giving something to someone and Intercambio
them giving you something else
9. Securitisation To borrow money in the form of bonds which Titulización
can then be traded on financial markets
10. Undertake To do or begin to do something, especially Emprender
something that will take a long time or be
difficult
11. Management Set of functions that are performed to manage Administration
(govern, organize an economy)
12. Budgeting Advance calculation of the cost of a work or Presupuesto
service.
 Date: April 30th, 2023
Personal Commentary

Operating Profit
In my perspective, apart from examining the operating income report, I believe it's essential to
also take into account the operating expenses when evaluating a business's financial
performance.
There are two main categories of income in a business: operating and non-operating. Operating
income refers to the revenue generated by a company's primary activities, while non-operating
income encompasses all other sources of revenue.
It's important to distinguish between these two types of income when analyzing a company's
financial performance because they can have different impacts on the overall profitability of the
business. The significance of considering both operating income and expenses in business
analysis lies in providing a more comprehensive view of the company's profitability.
Understanding the nature and source of income can provide valuable insights into the company's
operations and inform strategic decision-making. Additionally, examining both income and costs
together can help to determine the effectiveness of the company's operating strategies and
identify areas for improvement.
By looking at both aspects, one can identify areas where cost-cutting measures can be
implemented to improve the bottom line. Additionally, it can help decision-makers make informed
choices about future investments and expansions by understanding the company's financial
health. Overall, taking a holistic approach to financial analysis can lead to better decision-making
and long-term success for the business.
For this reason, it’s best to look at operating profit alongside other metrics to get a complete
picture of a company’s finances. Knowing how much profit a company generates from its core
activities helps investors understand the effectiveness of asset management. The same. Also, to
anticipate future growth opportunities.
I hope you are working on operating income vs non operating income has been to your liking and
that it can be useful And if you have a doubt, question or comment you can write to my e-mail:
zurirosales28@gmail.com

Sincerely
Rosales Garcia Zurisadai

Rosales Garcia Zurisadai