Module I· Three-Statement Mechanics & LinkagesIntermediate
Question
What are the typical non-cash items in the income statement?
Answer
Mechanics
Items that reduce net income without a cash effect — hence added back in the OCF reconciliation:
- Depreciation & amortization (D&A) — the largest item.
- Stock-based compensation (SBC) — IFRS 2 stock options, RSUs.
- Impairments — goodwill, PP&E, intangibles.
- Change in deferred taxes (DTA/DTL).
- Equity-method income (share of investees' NI — cash only comes via dividends).
- Fair-value changes on financial instruments (unrealized G/L).
- Unwinding of the discount on long-term provisions (pensions, onerous contracts).
- Losses on asset sales (against the cash proceeds in investing).
Deep diveShow more details
Pitch tip
A quality-of-earnings analysis breaks net income down into cash vs. non-cash components — the higher the non-cash share, the more cautious the valuation.