For example details in footnotes might reveal that

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and expenses, are operating unless information suggests otherwise. For example, details in footnotes might reveal that "other" includes nonoperating items. Or the company might explic- itly indicate the "other" is nonoperating by reporting the item after a subtotal for income from operations. In these cases, we would consider the "other" as nonoperating. Operating liabilities are liabilities that arise from operating revenues and expenses. For example, accounts payable and accrued expenses help fund inventories, wages, utilities, and other operating expenses; also, unearned revenue (an operating liability) relates to operating revenue. Similarly, pension and other post-employment obligations relate to long-term obli- gations for employee retirement and health fare, which by definition are operating activities (see Module 10). Operating liabilities exclude bank loans, mortgages or other debt, which are nonoperating. Further, companies often use capitalized leases to finance long-term operating assets, and these capitalized lease liabilities are also nonoperating (see Module 10). Lastly, nonoperating liabilities include any current and noncurrent liabilities that relate to discontinued operations. Nonoperating assets include cash and cash equivalents (see Business Insight box below) and investments in marketable securities, both short- and long-term. Nonoperating liabilities include interest bearing debt, both short- and long-term, and capitalized lease obligations. Finally, we consider all equity accounts nonoperating, including equity relating to noncontrol- ling interest.
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3USINESS INSIGHT Why is Cash a Nonoperating Asset? Module 3 I Profitability Analysis and Interpretation 3-10 ".1ostanalysts consider cash as nonoperating because this account consists almost totally of "cash equivalents," which are short-term investments with a scheduled maturity of 90 days or less. Techni- cally, the amount of cash needed to support routine business transactions is considered as operat- ilg and the remainder as a nonoperating short-term investment, similar to investments reported as arketable securities. If we know what portion of the cash balance supports operating activities, we ould classify that as operating. Unfortunately, companies do not report that information and most analysts feel that it is probably a small portion. As a result, we, like others, treat the entire cash bal- ance as nonoperating and recognize that we are probably understating net operating assets slightly. The following is Target's balance sheets for 2011 and 2010. Its operating assets and operating . 'ties are highlighted. TARGET Balance Sheets 15 and cash equivalents . card receivables, net of allowance of $690 and $1,016 . tOry . _ ;er current assets . ::::Halcurrent assets .............. ............ ..... ; . ~ and equipment ..E.nd . "" i1dings and improvements ................... .......... .......... res and equipment ............ ................................ :;omputer hardware and software .......... ..........................
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