What is One-Time Item?
271 reads · Last updated: December 5, 2024
A one-time item is a gain, loss, or expense on the income statement that is nonrecurring in nature and therefore not considered part of a company's ongoing business operations. To get an accurate gauge of a company's operating performance, one-time items are usually excluded by analysts and investors while evaluating a company. Although many one-time items hurt earnings or profit, there are one-time items that add to earnings in the reporting period.
Definition
One-time items refer to gains, losses, or expenses that appear infrequently on the income statement and are not considered part of a company's ongoing business operations. Analysts and investors typically exclude one-time items when evaluating a company's performance to accurately assess its operational results. While many one-time items negatively impact earnings or profits, some can increase earnings during the reporting period.
Origin
The concept of one-time items originated from the need for financial statement analysis, particularly in the mid-20th century, as the complexity of corporate financial reporting increased. Investors and analysts required a clearer understanding of a company's core business performance, leading to the separation of financial impacts from regular operations and sporadic events.
Categories and Features
One-time items can be categorized into various types, including asset impairments, restructuring costs, legal settlement expenses, and natural disaster losses. These items are characterized by their non-recurring and unpredictable nature. They are typically excluded to provide a more accurate assessment of a company's operational performance.
Case Studies
A typical case is BP's massive fines and cleanup costs in 2015 due to the Gulf of Mexico oil spill, considered one-time items as they were not part of the company's regular operations. Another example is General Electric's significant restructuring costs in 2018, which were treated as one-time items to more accurately reflect the company's ongoing operational capacity.
Common Issues
Investors often misunderstand the impact of one-time items, assuming they are always negative. In reality, one-time items can also be positive, such as unexpected gains from asset sales. Ignoring one-time items can lead to misjudging a company's profitability.
