Non-operating expense

Non-operating expense is a kind of expense that is not related to core business operations, e.g. selling products or services. There are four types of non-operating expenses:

  • depreciation
  • amortization
  • interest charges
  • other costs of borrowing

If the non-operating expenses are low, they can be excluded from standing analysis. An example of measure that ignores non-operating costs is EBITDAR.

However, sometimes it is convenient to use non-operating costs to optimize taxes. Using higher rate of depreciation or amortization will increase costs and decrease tax burden. The cash flow will remain the same. Therefore the optimization won't impact financial measures that are related e.g. with liquidity or credit score.

References

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