Financial Statements and Analysis Test - 9

Non-operating income, in accounting and finance, is gains or losses from sources not related to the main activities of the business.

Non-operating income is the portion of an organisation's income that is derived from activities not related to its core operations. Non-operating income can include such items as dividend income, profits and losses from investments, gains or losses incurred due to foreign exchange, asset write-downs and other non-operating revenues and expenses

Statement of profit and loss shows whether the enterprise is earning adequate profits and whether the profits have increased or decreased as compared to previous years whereas balance sheet shows the position of the business as regards to the payment of its short term as well as long term liabilities. Different ratios are also calculated. Hence, to assess the profitability and solvency is one of the objective of the financial statement analysis.

Other options i.e. historical analysis, ignores price level changes, ignores qualitative aspect are the limitations of financial statement analysis.

Following are the non-operating expenses:
Interest on long term debts
Loss on sale of fixed assets
Intangible assets written off such as goodwill, patents etc.A non-operating expense is an expense incurred by a business that's unrelated to its core operations. The most common types of non-operating expenses relate to depreciation, amortization, interest charges or other costs of borrowing. 

Rent received, Profit on sale of fixed assets, Compensation for acquisition of land are example of Non-operating incomes.Non-operating income is the portion of an organization's income that is derived from activities not related to its core operations. 

Vertical analysis is used for cross section analysis.Vertical analysis is analysis and review for single year. Cross section analysis is comparing 2 firms at same point of time.

In common size statement of profit and loss, Revenue from operations is taken as 100% and each item of expense related to different years or different firms but same period, are expressed as the percentage of total revenue from operations.

Similarly, in common size balance sheet, total assets or total equity and liabilities related to different years or different businesses are taken as 100%.

Statement of Profit and Loss is prepared to assess the net profit or net loss of the firm.

Intra-firm comparison means comparison of two or more departments or divisions of the same business unit with the objective of meaningful analysis in order to improve the operational efficiency of all the departments or divisions.

Internal analysis is done by the management to analyse financial position and performance. The analysis done by the shareholders, bankers and creditors is called external analysis.

Financial year always begins on 1st April  of current year and ends on 31st March in the next year.