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, Taxes, ...

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

    The direct costs attributable to the production of the goods ...
  4. Expense

    1. The economic costs that a business incurs through its operations ...
  5. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  6. Revenue

    The amount of money that a company actually receives during a ...
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. Fundamental Analysis

    What is the difference between operating income and EBITDA?

    Read about the major differences between earnings before interest, taxes, depreciation and amortization (EBITDA) and operating income in a company's financial health.
  8. Fundamental Analysis

    What is the difference between operating income and gross profit?

    Learn more about the difference between operating income and gross profit, two accounting figures that appear on a company's income statement.
  9. Fundamental Analysis

    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 profit margin.
  10. Fundamental Analysis

    What is the difference between market capitalization and enterprise value?

    Understand the basics of market capitalization and enterprise value, how they measure company value and how they differ in calculation and precision.

You May Also Like

Hot Definitions
  1. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  2. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  3. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  4. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  5. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  6. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
Trading Center