What is Other operating income?
1314 reads · Last updated: October 19, 2025
Other operating income refers to various types of income that a company earns from activities that are not part of its primary business operations but are still related to its overall business activities. This income may include, but is not limited to, rental income, interest income, commission income, government grants, and gains from the sale of assets. Other operating income is typically listed on the income statement (profit and loss statement) and is often detailed in the notes to the financial statements.
Core Description
Other operating income refers to earnings from non-core but business-related activities, expanding a company's total revenue streams. It supplements main operating income, providing financial flexibility and insight into asset utilization and strategic management. Accurate understanding, calculation, and disclosure of other operating income are essential for investors and management to evaluate profitability, risk, and decision-making.
Definition and Background
Other operating income is revenue generated from activities not central to a company’s primary business operations but still linked to its overall functioning. Common examples include rental income from leasing unused office space, interest earned on short-term investments, government grants, commissions from agency transactions, royalties, and profits from the sale of operational assets.
As companies diversified and financial reporting standards advanced, the need to differentiate core business income from supplementary sources became apparent. Major accounting frameworks such as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) require companies to report other operating income separately, which promotes transparency and enables better analysis of recurring and non-recurring earnings.
For example, a retail group in the UK may generate its primary revenue from product sales but also earns income by renting out unused floor space to external vendors. Similarly, a technology vendor might generate additional revenue by licensing non-essential software modules. By clearly documenting these items, annual reports help shareholders and analysts assess both the sustainability and risk profile of these supplementary income streams.
Calculation Methods and Applications
To accurately record other operating income, companies use either the direct or accrual accounting methods.
Direct Method: Income such as cash received from rents or commissions is recorded as it is collected. For instance, if a European retailer earns EUR 6,000 monthly by leasing warehouse space, that rent is recognized in the period received.
Accrual Method: In this method, income is recorded when it is earned, regardless of when cash is received. For example, if an IT firm provides support services and invoices clients quarterly, the service income is recorded in the period the service is provided, matching the related costs.
Formula Example:
Other Operating Income = Total Non-Core Business Income – Related Direct Costs
A sample case: Assume a manufacturing business receives USD 15,000 from equipment rentals, USD 4,000 in government grants, and USD 3,000 from selling scrap metal, with related expenses of USD 2,500. Its other operating income is (USD 15,000 + USD 4,000 + USD 3,000) – USD 2,500 = USD 19,500.
Applications:
Other operating income typically appears as a separate line item in the income statement. For clarity, detailed breakdowns—often required by IFRS—are included in financial statement notes, allowing analysts to identify recurring streams versus non-recurring gains. Companies from various sectors, such as finance and hospitality, use these figures for budgeting and strategic planning, assessing the contribution of non-core income to overall performance.
Comparison, Advantages, and Common Misconceptions
Comparison with Related Terms
| Category | Source | Frequency | Example (Hypothetical) |
|---|---|---|---|
| Core Operating Income | Main business activities | Regular/recurring | Product sales at a supermarket |
| Other Operating Income | Related, non-core activities | Regular/occasional | Rental income from store spaces |
| Non-operating Income | Unrelated activities | Occasional/rare | Gains from financial investments |
| Extraordinary Items | Unusual, infrequent events | Rare | Insurance settlement after a disaster |
Advantages
- Diversifies and stabilizes revenue
- Enhances asset utilization
- Mitigates risks associated with core business cycles
- Supports transparency through detailed reporting
Disadvantages
- May be volatile due to irregular or non-recurring sources
- Can obscure weak core operational performance if not transparently reported
- May add complexity to profit forecasting and analysis
Common Misconceptions
- Confusing with Core Revenue: For example, an industrial company might incorrectly classify rental revenue as core income, potentially distorting performance metrics.
- Misclassifying Non-Operating Gains: Gains from selling long-term investments should not be included in other operating income. This distinction ensures clarity in reporting.
- Overlooking Regularity: Mistaking a one-time property sale for a recurring income stream could mislead stakeholders and affect company valuation estimates.
Practical Guide
Understanding and Managing Other Operating Income
To manage other operating income effectively, companies and investors should emphasize clear classification, timely recognition, and detailed disclosure.
- Classification: Distinguish recurring, operationally related sources (such as rental income) from both core revenue and non-operating or extraordinary items.
- Disclosure: Provide detailed notes in financial statements to specify the type and regularity of other operating income, allowing stakeholders to discern trends and unusual events.
Sample Case Study (Hypothetical, Non-Investment Advice)
A European software company received EUR 80,000 from licensing rarely used software modules and EUR 20,000 in interest from cash holdings last year. It also obtained EUR 10,000 in government research grants, totaling EUR 110,000 in other operating income. Its annual report detailed each component for shareholders.
Steps to Ensure Proper Usage:
- Develop internal policies to classify and record each income stream accurately
- Carry out regular audits for accuracy and alignment with accounting standards
- Analyze the contribution of other operating income relative to total profit and treat windfall gains as non-recurring during profit forecasts and company valuation
Recommendations:
- Monitor the stability of these income streams: Recurring income (for example, office rental) is generally less risky than one-time gains
- Assess the effects of sudden changes: Large, irregular increases or decreases may indicate a change in business strategy or asset portfolio
Resources for Learning and Improvement
- Textbooks: “Intermediate Accounting” by Kieso et al. provides a thorough overview of reporting and classification
- Regulatory Resources: IFRS (see IFRS.org) and GAAP documents detail the rules for measurement and presentation
- Finance Portals: Morningstar and Investopedia offer practical examples and expert commentary on supplementary income classification
- Case Disclosures: Review annual reports from main stock exchanges (for example, London Stock Exchange) for real-world breakdowns
- Professional Bodies: Organizations such as the American Institute of CPAs (AICPA) and ACCA provide webinars and publications on accounting guidance
- Data Glossaries: Resources from the IFRS Foundation and accounting dictionaries explain relevant terms
- Workshops and Webinars: International Accounting Standards Board (IASB) events offer insights on application and compliance
- Online Articles: Explore financial websites for best practices and industry-specific use cases of other operating income
FAQs
What is other operating income?
Other operating income refers to earnings from activities outside a company’s principal business but related to its operations, such as rental income, commissions, government incentives, or occasional asset sales.
How does it differ from core operating income?
Core operating income arises from primary operational activities, while other operating income is derived from supplementary, non-core activities that still relate to business operations.
Why is it important for investors?
Understanding other operating income helps investors evaluate the consistency of profit, isolating stable earnings from irregular or one-time gains.
How should it be reported?
Other operating income should appear as a separate line in the income statement. Companies are required to provide notes specifying the nature and amount, ensuring transparency and compliance with regulations.
Can other operating income be taxed?
Most forms of other operating income are subject to tax, and the specific treatment depends on local regulations and the nature of the income.
Are there risks associated with high other operating income?
High reliance on non-core income can signal volatility and reduced sustainability. Analysts generally exclude significant non-recurring income when forecasting profits.
What are red-flag scenarios?
Large, non-recurring income events, such as asset disposals, may hide declining core business performance and warrant closer review.
Do industry standards impact classification?
Yes, industry practices vary. For example, property management companies may report substantial other operating income from managing properties.
How should investors adjust for non-recurring other income?
Remove extraordinary or rare items from trend analysis and valuation, with a focus on repeatable income streams.
Does accounting regulation change frequently?
Accounting standards and disclosure requirements are periodically updated, so companies need to adapt disclosures to maintain comparability and compliance.
Conclusion
Other operating income is a significant component of a company’s overall financial performance, situated between core operational revenue and unrelated gains. Accurate identification, measurement, and disclosure of other operating income enhance transparency and support sound management and investment decisions. By monitoring both the amount and frequency of other operating income, stakeholders can detect changes in business strategy, assess the stability of corporate earnings, and avoid misinterpreting one-time gains as ongoing profitability. As accounting standards develop and business activities diversify, maintaining a clear distinction between core and other operating income will remain essential for reliable analysis, effective communication, and robust financial decision-making.
