Legal Definitions - nonoperating income

Nonoperating income refers to revenue that a business earns from activities that are not part of its primary, core business operations. Unlike operating income, which is generated directly from a company's main products or services, nonoperating income comes from secondary or incidental sources. These sources often include earnings from investments, interest received on bank accounts, or profits from the sale of assets not central to the business's main function.

• Example 1: A Manufacturing Company Selling Property

  Imagine a company whose main business is manufacturing car parts. Over the years, it acquired a piece of land as a long-term investment, separate from its factory or distribution centers. If the company decides to sell this land for a profit, the money earned from that sale would be considered nonoperating income. This is because selling real estate is not the company's primary business; its core operation is manufacturing car parts.

• Example 2: A Retail Store Earning Interest

  Consider a large clothing retail chain that maintains a significant cash reserve in a high-yield savings account. The interest earned on this cash reserve each month would be classified as nonoperating income. The store's core business is selling clothing to customers, not generating returns from bank deposits. The interest is a financial gain separate from its main retail activities.

• Example 3: A Software Company Receiving Dividends

  A software development firm primarily earns revenue by creating and licensing software applications. However, the company also holds a portfolio of stocks in other technology companies as a strategic investment. Any dividends received from these stock holdings would be categorized as nonoperating income. Developing and selling software is the company's central operation; the dividend income is a financial return from an investment activity, not directly from its software business.