One-Time Items
One-time items are gains or losses reported in a company's income statement that are non-recurring in nature — such as restructuring charges, impairment write-downs, litigation settlements, or profits from asset disposals — and that distort the assessment of sustainable earnings if included without adjustment.
Virtually every company's income statement contains items that will not repeat. Recognising and adjusting for these is central to arriving at a normalised earnings figure that can be confidently projected forward. One-time items may appear above the operating profit line (as exceptional items under Ind AS 1) or below it, and they can be gains as well as charges.
Common one-time charges in the Indian corporate landscape include: impairment of goodwill (for instance, Tata Steel wrote down the goodwill associated with its European operations in multiple years); voluntary retirement scheme (VRS) costs when public sector undertakings or large manufacturers downsize workforces; provisions for litigation (Vodafone Idea booked several thousand crores in provisions related to Adjusted Gross Revenue demands by the Department of Telecommunications); and deferred tax reversals that created windfall profits when the corporate tax rate was cut in September 2019 from 30% to 22%.
On the income side, one-time gains include: profits on sale of property, plant and equipment (many old textile mills in Mumbai and Ahmedabad sold surplus land at significant premiums); gains from divestment of subsidiaries; and reversal of provisions made in excess in earlier years.
Ind AS 1 (Presentation of Financial Statements) does not prescribe a separate line item called 'exceptional items' by that name, but companies commonly present material items separately on the face of the profit and loss account or in the notes when their size or incidence makes separate disclosure necessary for users to understand the company's performance. Companies listed on Indian exchanges must also separately disclose exceptional items in their quarterly results submitted to stock exchanges under SEBI's LODR Regulations.
For investors, the discipline of stripping out one-time items and computing an adjusted or normalised EPS is essential before applying any valuation multiple. A company reporting ₹50 EPS that includes a ₹15 EPS one-time gain should be valued on ₹35 recurring EPS; applying a PE multiple to the reported ₹50 would overstate the justified share price.