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. Earnings

    The amount of profit that a company produces during a specific ...
  6. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
RELATED FAQS
  1. 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 >>
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

    The Future of Big Pharma Stocks

    A look at the future health of big pharma stocks.
  8. Trading Strategies

    How to Do the Fundamental And Technical Combo Trade

    Fundamental and technical analyses should be viewed as complementary rather than competing practices. When combined, these two methods can greatly strengthen your game.
  9. Investing

    What Lies Ahead for Apple's P/E ratio

    Recently, Apple's P/E multiple has come down to levels equal to the S&P 500. What does the future hold for the tech giant's P/E ratio?
  10. Economics

    What is Value Added?

    Value added is used to describe instances where a firm takes a product and adds a feature that gives customers a greater sense of value.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center