Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 13 - Financial Analysis: The Big Picture - Questions: 1

Answer

Sustainable income is the most likely level of income to be obtained in the future. Sustainable income differs from actual net income by the amount of irregular revenues, expenses, gains, and losses included in this year's net income.

Work Step by Step

When analysts use this year's net income to estimate future cash flows, they must make sure that this year's net income does not include irregular (i.e., not ordinary) revenues, expenses, gains, or losses.Net income adjusted for irregular items is referred to as sustainable income. Users are interested in sustainable income because it helps them derive an estimate of future earnings without the "noise" of irregular items.
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