is a financial concept covered in this article. Profit from a Company's Core, Ongoing Business
If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.
Net income from continuing operations is the portion of a company’s profit that comes from its regular, ongoing business activities, excluding any results from parts of the business that have been discontinued or sold off. In other words, it represents the after-tax earnings from the company’s core operations—the profit generated by the business’s normal revenue streams minus all the usual expenses of running the business. This figure leaves out one-time events and the results of any business segments that are no longer active, so it gives a clearer view of how the company’s core business is performing.
How It Is Calculated and What’s Included
On a multi-step income statement, net income from continuing operations is calculated by taking the revenues from the company’s ongoing operations and subtracting all expenses related to those operations. This typically includes:
- Revenue from continuing operations: All sales of goods or services from the parts of the business that will keep operating.
- Cost of goods sold (COGS): The direct costs of producing those goods or services.
- Operating expenses: Regular expenses of running the business (salaries, rent, marketing, etc.).
- Other recurring income/expenses: Any other income or costs from normal operations, such as interest expense.
- Income taxes: Taxes incurred on the income from these continuing operations.
Excluded from this calculation are any items that do not relate to ongoing operations, most notably discontinued operations (profits or losses from a segment of the business that has been shut down or sold).
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
— Warren Buffett, Chairman & CEO, Berkshire Hathaway Berkshire Hathaway Chairman’s Letter 1996 (1996)
Why This Metric Is Important
Net income from continuing operations is an important metric because it highlights the sustainable profitability of a company’s core business. Investors and analysts look at this number to understand how well the company’s regular operations are doing, without the noise of any temporary or discontinued activities. Because it strips out one-time events and businesses that are no longer running, it gives a clearer picture of what kind of earnings the company can likely repeat in future periods. Accounting rules require this separation so that investors can clearly see what portion of earnings comes from ongoing operations versus parts of the business that have ceased.
Quality of Earnings
Focusing on income from continuing operations helps analysts evaluate the quality of earnings. A healthy company will usually earn most of its profit from its main line of business. If profits were mostly from a one-time event (like selling a building), that could be a red flag about sustainability.
Continuing Operations vs. Total Net Income
It’s important to distinguish net income from continuing operations from a company’s total net income. Total net income (the ‘bottom line’) includes everything: the income from continuing operations plus any results from discontinued operations.
Formula: Total Net Income = Net Income from Continuing Operations +/- Profit (or Loss) from Discontinued Operations
If a company has no discontinued operations, then its net income from continuing operations will be the same as its total net income. However, if the company sold or closed a division, the two figures will differ. Financial statements show these amounts separately to provide a full picture.
Examples and Use Cases
Discontinued Operations
Suppose a company’s income statement shows 3.9 million loss from a discontinued division. The company would report a total net income of 9.75M - 9.75 million as the true earnings power of the ongoing business, since the discontinued segment will not affect future profits.
This separation is especially relevant during major corporate changes, such as selling a division or incurring a large, one-time restructuring cost. It allows anyone reading the financial statements to see how the ongoing parts of the company performed on their own, filtering out the noise of events not expected to recur.