Dear P123 community,
What is the economic of the two line items Special Items (“SpcItems”) and Non-operating Income (“ExpNonOp)”.
According to the Compustat financial model, the following relationship should hold in most cases:
Portfolio123 Codes
Sales()
- CostG()
- SGandA()
- DepAmort()
= OpInc() [or, OpIncAftDepr() - IntExp
- ExpNonOp()
- SpcItems()
= IncBTax()
- IncTaxExp()
missing
= NetIncBXor()
In fact, up to OpInc(), you can get about 98% matching in the whole Compustat universe depending on whether RandD() is considered.
So we all agree that OpInc() and NetIncBXor() to be important indicators of profitability (more or less depending on the context). But in order to get net income, we also have to include what I would consider to be “orphan” line items.
So, my question is what is the economic significance, if any, of these orphan line items?
E.g., what do these things tell us about historical costs, health, cash flows, accountancy, etc…? And, moreover, how do we capture and exploit this information in a systematic manner?