One-Time Item
A one-time item is a gain, loss, or expense reported on the income statement that is nonrecurring and not part of a company’s ongoing operations. Because these items can distort a firm’s true operating performance, analysts and investors commonly exclude them when evaluating core business results.
Where one-time items appear
- They may be recorded within operating expenses or below earnings before interest and taxes (EBIT).
- EBIT measures profit before interest and taxes; net income is profit after all costs and revenues.
- One-time items can inflate or depress net income for a reporting period.
Common types of one-time items
- Restructuring charges (e.g., debt or organizational changes)
- Asset impairments or write-offs
- Losses from discontinued operations
- Charges from early retirement of debt or bonds
- Costs related to mergers, acquisitions, or divestitures
- Gains or losses on asset sales (equipment, subsidiaries)
- Large legal settlements or extraordinary legal costs
- Natural disaster losses
- Charges from changes in accounting policy
How they are reported
- Public companies that file consolidated financial statements may group one-time items into aggregated line items (for example, “Other income”).
- Consolidated line items often include footnote references that explain the components in detail. Those footnotes and the management discussion and analysis (MD&A) section provide the context needed to determine whether an item is truly nonrecurring.
- Investors must inspect the notes to understand the nature, size, and recurrence risk of such items.
Why separating one-time items matters
- Transparency: Separating nonrecurring items lets stakeholders assess the company’s continuing earning power.
- Analysis: Investors, analysts, and lenders can strip out one-time items to calculate adjusted earnings metrics (e.g., adjusted EBIT or adjusted net income).
- Credit decisions and covenants: Lenders use core operating results to evaluate covenant compliance and creditworthiness.
- Risk assessment: Frequent “one-time” gains (such as repeated asset sales) may indicate that the activity is effectively part of ongoing operations or signal financial stress.
Example (illustrative)
A large diversified company reported a substantial “Other income” amount in a quarterly filing. The notes revealed the figure netted:
– A large one-time gain from the sale of a business division, and
– An offsetting loss in investment income,
resulting in a smaller net positive amount on the income statement. This example highlights the need to read footnotes to see the components behind aggregated line items.
Key takeaways
- One-time items are nonrecurring gains, losses, or expenses that can skew reported earnings.
- Analysts and creditors often remove these items to evaluate core operating performance.
- Inspecting financial statement footnotes and the MD&A is essential to determine whether items are truly nonrecurring or part of ongoing business activity.