#cfa-level-1 #financial-reporting-and-analysis #non-recurring-non-operating-items #summary #understanding-income-statement
Non-recurring items should be scrutinized to assess whether they are truly "non-recurring." For example, gains or losses from the sale of fixed assets are classified as unusual or infrequent items. However, for a car rental company that retires part of its fleet of cars annually, such gains or losses are rather recurring in nature. Some non-recurring charges are, in fact, prior period expenses taken too late or future expenses taken too early. For example, asset write-downs may indicate that prior period depreciation or amortization changes were insufficient. Therefore, completely ignoring such non-recurring items in financial analysis may result in an overestimation of a company's earning trend.