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What are Extraordinary Items on the Income Statement?
In financial reports and filings, companies often have entries titled "extraordinary items". Extraordinary items are things that affected a company's profit or business but are not expected to reoccur. They can consist of things such as the sale of a subsidiary, or payments in connection with a lawsuit.
It is very important when investors look at a company, they pay particular attention to the extraordinary items. For instance, there is currently a company trading at a P/E ratio of 3 to 4 (insanely cheap at first glance). However, upon closer examination, an investor will discover that the profit came from the sale of one of the company's large subsidiaries. Without the sale, the business would have lost close to one billion dollars. Because the profit from the subsidiary sale was a one-time event, the company faces massive loses next year unless something is done.
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Lesson 4: How to Analyze an Income Statement
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