Operating Earnings

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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. Operating Revenue

    Income derived from sources related to a company's everyday business ...
  2. Earnings Before Interest, Tax and ...

    An indicator of a company's financial performance, which is calculated ...
  3. Earnings Before Interest, Taxes, ...

    An indicator of a company's financial performance calculated ...
  4. Earnings Before Interest, Taxes, ...

    An indicator of a company's financial performance which is calculated ...
  5. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
  6. Earnings

    The amount of profit that a company produces during a specific ...
RELATED FAQS
  1. What does a Z-Score tell a stock analyst about the health of a company?

    The Altman Z-score measures a company's likelihood of bankruptcy by using five ratios that are assigned different weights ... Read Full Answer >>
  2. How can an investor use the Z-Score to compare investment options?

    The Altman Z-score is a test that an investor uses to gauge the likelihood of a company going bankrupt. The Altman Z-score ... Read Full Answer >>
  3. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  4. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  5. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
Related Articles
  1. Investing

    Zooming In On Net Operating Income

    NOI is a long-run profitability measure that smart investors can count on.
  2. 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.
  3. Fundamental Analysis

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.
  4. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  5. Options & Futures

    EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.
  6. Retirement

    Common Clues Of Financial Statement Manipulation

    Search for the "bloody" fingerprints in accounting crimes.
  7. Economics

    Understanding the Top Line

    Top line refers to a company’s gross sales without any reductions for discounts or returns.
  8. Economics

    What's an Allowance for Doubtful Accounts?

    The allowance for doubtful accounts represents the percentage of the accounts receivable the company expects to write-off as uncollectible.
  9. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
  10. Investing Basics

    What is Accrued Income?

    In a mutual fund, accrued income is earnings that have accumulated over the year, but have not yet been paid out to shareholders.

You May Also Like

Hot Definitions
  1. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  2. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  3. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  4. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  5. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  6. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!