Dictionary / Financial statements
What Is Operating Income?
Operating income is the profit a company makes from its core business, before interest and taxes. It shows how well the business itself runs.
How to calculate operating income
Gross profit−Running costs=Operating income
Running costs include staff, rent, research and marketing. Operating income is sometimes called operating profit or EBIT.
Operating income vs net income
Net income also takes out interest on debt, taxes and one-time items. Operating income leaves those out, so it is better for comparing how well two businesses operate.
Operating margin
Operating income divided by revenue is the operating margin. A rising operating margin means the company keeps more of each sale as it grows. That is called operating leverage.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
Net incomeThe final profit after every cost.
Gross profitSales minus the direct cost of the product.
Income statementShows revenue, costs and profit.
EBITDAProfit before some costs, often used to compare companies.
Profit marginHow many cents of profit from each dollar of sales.
Earnings reportA company's report card, every three months.