Chapter 7 – Other items

Gain/loss on sale of assets: There are times when a company decides to sell its assets which could be investments in securities or land or a part of business to a competitor who is willing to pay a good price. Since these do not form a part of major operating activities of most businesses (except financial institutions and real estate companies), these should be excluded from ascertaining the earnings power of the business.

It is worth mentioning that some companies might window-dress their income statements by not putting the Gain on sale of assets separately from the operating income section. Value investors would be careful not to get fooled by such practices.

Other items: Other sources of income other than the ones mentioned above are not directly contributing to the earning power of the business, so should be excluded.

Investors should be very careful if these items form a major part of profits, year after year.

Chapter 8: Income before tax, Tax expense and Net Profit

Chapter 6 – Interest Expense