What are 'Operating Earnings'

Profit earned after subtracting from revenues those expenses that are directly associated with operating the business, such as cost of goods sold, administration and marketing, depreciation and other general operating costs. Operating earnings are an important measure of profitability, and since this metric excludes non-operating expenses such as interest and taxes, it enables an assessment of the company's core business profitability to be made.


Also known as operating income.

BREAKING DOWN 'Operating Earnings'

Operating earnings differs from another widely used measure of profitability, EBIT or earnings before interest and taxes, in that it excludes non-operating income, whereas EBIT includes non-operating income.

For example, if Widget Co. had $10,000,000 in revenues in a given quarter and $7,500,000 in operating expenses during that period, its operating earnings would be $2,500,000. Net income would then be derived by subtracting interest expenses and taxes from the operating earnings. The operating margin, or operating earnings as a percentage of revenues, which is 25% in this example, is closely tracked by management and investors from one quarter to the next for an indication of the trend in profitability.

RELATED TERMS
  1. Earnings Before Interest & Tax ...

    An indicator of a company's profitability, calculated as revenue ...
  2. Non-Operating Expense

    An expense incurred by activities not relating to the core operations ...
  3. Non-Operating Income

    The portion of an organization's income that is derived from ...
  4. Operating Revenue

    Income derived from sources related to a company's everyday business ...
  5. Operating Profit

    The profit earned from a firm's normal core business operations. ...
  6. Non-Operating Asset

    Classes of assets that are not essential to the ongoing operations ...
Related Articles
  1. Investing

    Explaining Non-Operating Income

    Non-operating income is any profit or loss a business generates through activities that are not related to its core operations.
  2. Taxes

    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. Investing

    Operating Profit

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

    Gross, Operating and Net Profit Margins

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

    What are Operating Expenses?

    An operating expense is any expenditure made for the purpose of operating a business. These expenses are the day-to-day costs that help keep the business going. Operating expenses are reflected ...
  6. Investing

    Understanding Profit Metrics: Gross, Operating and Net Profits

    Rather than relying solely on net profit figures to evaluate a company's performance, seasoned investors will often look at gross profit and operating profit as well.
  7. Investing

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.
  8. Investing

    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.
  9. Investing

    Calculating Operating Ratio

    An operating ratio compares a company’s operating expenses to its net sales.
  10. Investing

    What is Operating Revenue?

    Operating revenue is income that’s derived from sources related to a company’s everyday business operations.
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. 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 >>
  3. Why does operating profit exclude interest revenues and expenses?

    Understand the purpose of examining a company's operating profit margin and why interest revenues and expenses are not included ... Read Answer >>
  4. What is the formula for calculating profit margins?

    Learn about gross, operating and net profit margins, how each is calculated and how they are used by businesses and investors ... Read Answer >>
  5. How do operating expenses affect profit?

    Explore how operating expenses and the cost of goods sold can either increase or decrease a company's profits on an income ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center