Definition:

Net Income to Common Including Extraordinary Items refers to the net income available to common shareholders after accounting for all expenses, taxes, and extraordinary items. Extraordinary items are unusual and infrequent gains or losses that are not part of the company's ordinary operations.

Examples

Examples of extraordinary items might include gains or losses from natural disasters, legal settlements, or the sale of a business segment. For instance, if a company sells a division and records a significant gain, this would be considered an extraordinary item.

Formula:

Net Income to Common Incl. Extraordinary Items = Total Revenue - Total Expenses - Taxes + Extraordinary Gains - Extraordinary Losses

How to use the metric:

This metric is used by investors and analysts to assess the profitability of a company, taking into account all factors, including unusual and infrequent events. It provides a comprehensive view of a company's financial performance and helps in comparing profitability across different periods or companies.

Limitations:

One limitation is that extraordinary items can distort the true profitability of a company, making it difficult to compare performance over time or with other companies. Additionally, the classification of extraordinary items can be subjective, leading to inconsistencies in reporting.

Applies to:

This metric is applicable across various industries, particularly those where extraordinary items are more common, such as insurance, manufacturing, and energy, where natural disasters or large settlements might occur.

Doesn't apply to:

Industries with highly predictable and stable operations, such as utilities or consumer staples, might not frequently encounter extraordinary items, making this metric less relevant for comparative analysis.

Summary:

Net Income to Common Including Extraordinary Items provides a comprehensive view of a company's profitability by including all revenues, expenses, and extraordinary items. While useful for understanding overall financial performance, it can be distorted by unusual events and may not always provide a clear picture of ongoing operational profitability.