How many types of Income does a business have?
Today, any business is done to make good profits and money for yourself and the shareholders. Hence the Investors and Entrepreneurs must look for companies giving increasing incomes. When the revenue is growing, any business organization can sustain for long. So, the business model can be different for all types of business, but the objective would be the same, i.e., to increase the revenue streams and have growth in your respective business. Below are the different kinds of Incomes or Revenues:
2. Operating Income
3. Other Income
4. Exceptional Income
Any company’s lifeline is its sale. A relative increase in the sales of a company carves out the path leading to growth. So primarily, investors invest in stocks when they spot a growth in the annual or quarterly reports, which shows that the companies are sustainable. When the company products are sold, the sale takes place. Sales done under the credit period are not favored, particularly by the investors. For example, the Healthcare sector and telecom companies generally have sales in the cash mode.
On the other hand, sales under cement companies and capital goods companies are primarily made in credit. This usually means that the money is obtained only after the sale has been created first. The period of credit is different from sector to sector and generally ranges from 7 to 90 days. The investors and company both prosper when the liquidity and cash flow of the company are strong, and that happens when the period of credit is low. However, if the period is on the higher side, then the cash component gets stuck, and eventually, it hampers the functioning capital requirements of the organization.
Operating Income is yet another type of revenue considered under the Income statement. This type of revenue is produced by selling any by-product formed in the main product line manufactured by any business. For example, industries making cars will have many by-products like rubbers, metal, bearings, etc., which are like leftovers, while a completed, polished product like a car. So now these can be recycled and sold by the respective organizations for brand new product fabrication. Thus, the organizations who sell these scraps or by-products while creating a polished end product generate some income. Therefore this category of business income is called Operating Business Income. Operating Income is calculated by deducting the cost of sold goods and operating expenses from the Total Revenue.
Now we look onto another type of component, which comes under the Income statement known as Other Income. This income type is included under Total revenue or Total Income, but this does not contain business income. Other Income is usually Income that doesn’t come under the central business nor related to it. For example, suppose a particular organization has any office or godown or warehouse and gets rent from it as Income. In that case, it is considered under Other Income of business (Income statement) as its main business, and the primary source of income can be from manufacturing paints. Other stuff considered under this category can be an asset that the organization has let go of or any interest that the company gets on its saved deposits or any other investment undertaken by the company and gets dividend on it. All these types come under another Income category. This other Income can be reappearing in trend or nature.
Another particular income that is present under the Income statement is the Exceptional loss or an Exceptional loss. Under the revenue total or the total income section, it is not included. This particular loss of Income is only a one-time affair. These are typically non-repetitive and are generally unusual types of losses or Income. These can be costs of some form of legal settlements, discontinued operations, and one-time restructuring or disposal of assets for one time. These are sometimes human decisions and occasionally natural disasters also. Thus all of these types of business losses or incomes are usually accounted for before the treatment of any loss or profit.
Generally, growth on the positive side of operating income and revenue streams is seen as a positive sign in any organization. In contrast, continuous growth in exceptional Income or other Income is taken with a slightly negative connotation. Any reorganization is generally associated with tremendous losses or extraordinary Income. But it is usually undertaken to keep in mind the long-term benefit of the company. The Exceptional loss or Income usually affects its bottom line while the operating Income, sales income, and other Income impact its Topline.