Operating Profit

Loading the player...

What is 'Operating Profit'

Operating profit is the profit earned from a firm's normal core business operations. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes.

Also known as "earnings before interest and tax" (EBIT) or "operating income".

Calculated as:

Operating Profit = Operating Revenue - COGS - Operating Expenses - Depreciation & Amortization

BREAKING DOWN 'Operating Profit'

For example, suppose ABC Printing Company earns $50 million from its core printing related operations, $10 million from its 40% stake in XYZ Corp. and $3.5 million from interest earned in its money market and bank accounts. In addition, the company spends $10 million in production related costs.

Overall, the company's operating profit is $40 million. This is calculated as the $50 million in operating revenue million minus the $10 million in production costs. The other $10 million and $3.5 million in earnings are not included in operating income because they are investment income.

RELATED TERMS
  1. Operating Earnings

    Profit earned after subtracting from revenues those expenses ...
  2. Operating Income

    The amount of profit realized from a business's operations after ...
  3. Earnings Before Interest & Tax ...

    An indicator of a company's profitability, calculated as revenue ...
  4. Operating Loss - OL

    The net loss recorded as a result of a company's unprofitable ...
  5. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  6. Degree Of Operating Leverage - ...

    A type of leverage ratio summarizing the effect a particular ...
Related Articles
  1. Investing

    Operating Profit

    Operating profit is the profit generated from the core business of a company before accounting for interest and taxes.
  2. Investing Basics

    EBIT (Earnings Before Interest and Taxes)

    Earnings before interest and taxes, or EBIT, takes a company’s revenue, or earnings, and subtracts its cost of goods sold and operating expenses.
  3. Professionals

    The Income Statement: Key Calculations

    FINRA/NASAA Series 65 - The Income Statement: Key Calculations. This section explains calculations of operating income, EBIT, Net income and cash flow.
  4. Term

    Gross, Operating and Net Profit Margins

    A company’s income statement includes the company’s gross, operating and net profits.
  5. Economics

    What are Earnings?

    The amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year.
  6. Options & Futures

    Financial Statements: Earnings

    By David Harper (Contact David)In this section, we try to answer the question, "what earnings number should be used to evaluate company performance?" We start by considering the relationship ...
  7. Investing Basics

    Profit Metrics: Gross, Operating & Net Profits

    In addition to net profit, most analysts look at a company’s gross profit and operating profit to gauge performance.
  8. Economics

    Calculating Economic Profit

    Economic profit is the difference between the revenue a firm earns from sales and the firm’s total opportunity costs.
  9. Professionals

    The Income Statement: Key Ratios - Profit and Operating Margin

    FINRA/NASAA Series 65 - The Income Statement: Key Ratios - Profit and Operating Margin. In this section key ratios: profit margin, operating margin, interest coverage ratio, price earning ratio ...
  10. Insurance

    Everything Investors Need To Know About Earnings

    We go over the concepts behind the excitement over the most important figure in the stock market.
RELATED FAQS
  1. What is the difference between operating income and operating profit?

    Find out why operating margin and operating income can be treated synonymously with EBIT, but how they all differ from operating ... Read Answer >>
  2. Is Net Operating Income (NOI) the same thing as Earnings Before Interest and Taxes ...

    Find out about net operating income, earnings before interest and taxes, why they are not equivalent, and which measure takes ... Read Answer >>
  3. What are the differences between operating profit and operating income?

    Learn how operating income, also known as operating profit, is determined. Also, see how investors use this number on the ... Read Answer >>
  4. What is the difference between operating income and revenue?

    Understand the definitions of revenue and operating income, how they are calculated and interpreted, and how operating income ... Read Answer >>
  5. What does operating profit margin tell a business owner?

    Learn about the operating profit margin, how it is calculated and what it says to both business owners and investors about ... Read Answer >>
  6. What is the difference between Operating Cash Flow and Net Operating Income (NOI)?

    Learn what operating cash flow and net operating income are, how the two metrics are calculated and the main difference between ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center