What is One-Time Charge?
547 reads · Last updated: December 5, 2024
A one-time charge, in corporate accounting, is a charge against a company's earnings that the company's managers expect to be an isolated event and is unlikely to occur again. A one-time charge can either be a cash charge against earnings such as the cost of paying severance expenses to laid-off former employees or a non-cash charge such as the writing down of the value of assets such as a piece of real estate whose market value has fallen due to changes in business fundamentals or consumer preferences.Financial analysts routinely exclude one-time charges when they evaluate a company's ongoing earnings potential.
Definition
In corporate accounting, a one-time charge refers to expenses that managers expect to be isolated events and unlikely to recur. These charges can be cash expenses, such as severance payments to laid-off employees, or non-cash expenses, such as asset write-downs due to changes in business fundamentals or consumer preferences.
Origin
The concept of one-time charges originated in corporate accounting practices to more accurately reflect a company's ongoing profitability. Financial analysts typically exclude these infrequent expenses to provide a clearer picture of a company's financial health. As business environments have become more complex, this concept has been widely adopted.
Categories and Features
One-time charges can be categorized into cash and non-cash types. Cash one-time charges include severance payments and legal settlement costs, while non-cash one-time charges include asset impairments and goodwill write-downs. These charges are characterized by their non-recurring nature and short-term impact on financial statements.
Case Studies
For example, in 2018, General Electric (GE) announced a $22 billion goodwill impairment, considered a one-time charge as it reflected a reassessment of the future profitability of its power business. Another example is Boeing's costs related to the grounding of the 737 MAX aircraft in 2019, which were treated as one-time charges because they were directly related to a specific event.
Common Issues
Investors often overlook the impact of one-time charges when analyzing financial statements, assuming they do not affect future profitability. However, ignoring these charges can lead to misjudging a company's financial health, especially when they indicate underlying business risks.
