Underlying Operating Profit
Basic operating profit refers to the operating profit of a company after deducting non-recurring items. Non-recurring items include one-time income, one-time expenses, and other items unrelated to the normal operation of the company. Basic operating profit can better reflect the operating condition of the company by excluding the impact of non-recurring factors on profit, and more accurately evaluate the company's profitability and operational efficiency.
Basic Operating Profit
Definition
Basic operating profit refers to the operating profit of a company after excluding non-recurring items. Non-recurring items include one-time income, one-time expenses, and other items unrelated to the company's normal operations. Basic operating profit better reflects the company's operating conditions by eliminating the impact of non-recurring factors, providing a more accurate assessment of the company's profitability and operational efficiency.
Origin
The concept of basic operating profit originated from the need for financial analysis, especially in the mid to late 20th century. As the complexity of corporate financial statements increased, investors and analysts required a more accurate metric to evaluate the actual operating conditions and profitability of a company.
Categories and Characteristics
Basic operating profit can be categorized into the following types:
- Regular Operating Profit: Operating profit after excluding all non-recurring items, reflecting the company's daily operating results.
- Adjusted Operating Profit: Further adjustments on the basis of regular operating profit, such as restructuring costs or asset impairment losses.
Characteristics:
- Exclusion of Non-Recurring Factors: Better reflects the true operating conditions of the company.
- Comparability: Basic operating profit is more comparable across different companies.
- Stability: Basic operating profit is usually more stable as it excludes highly volatile non-recurring items.
Specific Cases
Case 1: A company reported an operating profit of 5 million yuan in 2023, which included a one-time income from asset sales of 1 million yuan and a one-time restructuring expense of 0.5 million yuan. The basic operating profit is 5 million yuan - 1 million yuan + 0.5 million yuan = 4.5 million yuan.
Case 2: Another company reported an operating profit of 8 million yuan in 2023, which included a one-time legal compensation expense of 2 million yuan. The basic operating profit is 8 million yuan + 2 million yuan = 10 million yuan.
Common Questions
Question 1: Why use basic operating profit instead of directly using operating profit?
Answer: Basic operating profit excludes the impact of non-recurring items, better reflecting the company's true operating conditions and profitability.
Question 2: Does basic operating profit completely exclude all non-recurring items?
Answer: Basic operating profit mainly excludes one-time income and expenses, but may also adjust other items depending on the specific situation.
