Net other income is a company’s total non-operating income minus its total non-operating expenses. It appears on the income statement directly below operating profit and captures everything the business earns and spends outside its core operations: interest, dividends, gains and losses on asset sales, royalties, foreign currency swings, and similar items. If a software company collects $50,000 in interest and dividends but pays $30,000 in loan interest, its net other income is $20,000.
The Formula
Net Other Income = Total Other Income − Total Other Expenses
A positive result means secondary income outweighed non-operating costs. A negative result means debt servicing, investment losses, or similar outflows exceeded whatever the company earned on the side. Whichever way it lands, the figure gets added to operating profit to arrive at pre-tax income.
What Counts as Other Income
Other income covers money flowing in from sources that have nothing to do with selling the main product or service. The most common example is interest earned on bank accounts, money market funds, or short-term certificates of deposit. For companies sitting on idle cash, those returns are small but steady. Dividends from equity stakes in other businesses land here too, reflecting passive investment returns rather than operational effort.
Gains on selling fixed assets show up frequently. When a company sells equipment or a building for more than its depreciated book value, the profit is other income because the company isn’t in the business of flipping real estate or machinery. Royalties from licensing intellectual property, rental income from spare warehouse or office space, and proceeds from scrap sales all belong in the same bucket.
Two less obvious items round out the category. Companies doing business internationally recognize foreign currency transaction gains when exchange rate shifts work in their favor. And under the accounting standard that took effect in 2025, certain government grants can be reported as other income rather than folded into operating revenue, particularly grants that reimburse operating expenses rather than fund asset purchases.1FASB. Accounting for Government Grants
What Counts as Other Expenses
The expense side captures costs tied to financing, investing, and one-off events rather than producing goods or delivering services. Interest paid on commercial loans, corporate bonds, and lines of credit typically makes up the bulk. This is the price of borrowed capital, and it can be substantial for heavily leveraged companies.
Losses on selling investments or disposing of outdated equipment also fall here. When an asset sells for less than its carrying value on the books, the shortfall is an other expense. The same accounting logic that creates a gain when you sell above book value creates a loss when you sell below it.2Board of Governors of the Federal Reserve System. Financial Accounting Manual for Federal Reserve Banks, January 2026 – Chapter 3 Property and Equipment
Legal settlements and court-ordered payments count as other expenses when they stem from disputes unrelated to daily operations. Foreign currency transaction losses mirror the gain side: if exchange rates move against you between invoicing and collecting payment, the loss lands below the operating line.
One thing catches people off guard. Restructuring charges usually stay put in operating expenses. Severance and facility closure costs tied to activities that were previously part of operations generally remain classified as operating expenses, not other expenses, even though they feel like one-time events.
A Worked Example
Suppose a mid-size manufacturer reports the following for the year on the income side:
- Interest income of $12,000 earned on a corporate money market account
- Dividend income of $8,000 from an equity stake in a supplier
- A $15,000 gain on selling a CNC machine above its book value
- Total other income: $35,000
And on the expense side:
- Loan interest of $20,000 on a term loan used to expand the factory
- A $5,000 loss from liquidating a bond fund below cost
- Total other expenses: $25,000
Net other income equals $35,000 minus $25,000, or $10,000. That $10,000 gets added to operating profit before pre-tax income is calculated. Without the equipment sale, the figure would have been negative $5,000, dragging down the bottom line despite healthy operations.
Where It Appears on the Income Statement
SEC rules dictate a specific ordering for public companies. Revenue and cost of goods sold come first, followed by operating expenses, then a subtotal for operating income. Non-operating income sits directly below that subtotal as its own line item, broken out into dividends, interest on securities, gains or losses on securities, and miscellaneous other income. Interest expense on debt gets its own separate line, and non-operating expenses follow. The resulting net figure feeds into pre-tax income, then net income.3eCFR. 17 CFR 210.5-03 Statements of Comprehensive Income
This layered structure exists for a reason. It lets you see whether a company’s profit came from selling products or from a one-time windfall like dumping real estate. If any single item within non-operating income is material, the company must disclose it separately on the face of the statement or in the notes.3eCFR. 17 CFR 210.5-03 Statements of Comprehensive Income
A note on scope: the phrase “other income” also appears on individual tax returns, on Schedule C for sole proprietors and Schedule 1 for personal filers, but those uses cover different categories of taxable income and are not the financial-statement metric described here.
How to Read the Number
A consistently positive net other income suggests the company manages its cash and investments well, generating returns on the side that supplement operational earnings. That’s healthy as long as the figure doesn’t represent a growing share of total profit. When net other income makes up more than a small fraction of pre-tax earnings, start asking whether the core business is pulling its weight.
A sudden spike deserves extra scrutiny. Selling off real estate, collecting a one-time legal settlement, or recognizing a large insurance recovery can all make a bad quarter look passable. The inverse is equally telling. A sharp drop into negative territory often signals rising debt costs, failed investments, or asset write-downs that management may downplay in earnings calls.
Persistently negative net other income points to heavy debt servicing. The company might have strong sales and healthy margins, but if interest expense consistently overwhelms secondary income, the financial structure is doing real damage to shareholder returns. Comparing the figure across competitors in the same industry often reveals which companies carry the most financial risk beneath otherwise similar operating results.
Why It Matters for Valuation
Anyone buying or investing in a business should care about net other income because it directly affects how earnings get adjusted during valuation. Analysts typically value companies using normalized EBITDA, which strips out one-time and non-operating items to reveal what the business earns from its core activities on an ongoing basis. A large positive net other income inflates reported profits, and normalization brings them back down.
The adjustment works in both directions. A one-time gain from selling a building gets subtracted because the buyer can’t count on it repeating. A one-time legal settlement payment gets added back for the same reason. Recurring items like interest income on a large cash balance may stay in the analysis if the buyer expects to maintain that cash position, but interest expense tied to the seller’s debt structure almost always gets removed because the buyer will have a different capital structure.
The practical consequence: a company showing strong bottom-line profits heavily boosted by asset sales, legal recoveries, or other non-recurring windfalls will see its valuation come down once those items are backed out. Sellers sometimes resist these adjustments, and this is where most valuation disputes live. Scrutinize the other income line before anything else.