Operating Income

AAA

DEFINITION of 'Operating Income'

The amount of profit realized from a business's operations after taking out operating expenses - such as cost of goods sold (COGS) or wages - and depreciation. Operating income takes the gross income (revenue minus COGS) and subtracts other operating expenses and then removes depreciation. These operating expenses are costs which are incurred from operating activities and include things such as office supplies and heat and power. Operating Income is typically a synonym for earnings before interest and taxes (EBIT) and is also commonly referred to as "operating profit" or "recurring profit."

Calculated as:

Operating Income = Gross Income - Operating Expenses - Depreciation & Amortization

VIDEO

Loading the player...

BREAKING DOWN 'Operating Income'

Operating income would not include items such as investments in other firms, taxes or interest expenses. In addition, nonrecurring items such as cash paid for a lawsuit settlement are often not included.

Operating income is required to calculate operating margin, which describes a company's operating efficiency.

For more, check out Analyzing Operating Margins

RELATED TERMS
  1. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  2. Net Operating Income - NOI

    A company's operating income after operating expenses are deducted, ...
  3. Cash Flow From Operating Activities ...

    An accounting item indicating the cash a company brings in from ...
  4. Operating Loss - OL

    The net loss recorded as a result of a company's unprofitable ...
  5. Continuing Operations

    Continuing operations is a business term used to describe the ...
  6. Operating Income Before Depreciation ...

    A non-GAAP measure of financial performance used by companies ...
Related Articles
  1. Stock Analysis

    How To Analyze Netflix's Income Statements

    Learn how to read Netflix's income statement, calculate net income and interpret EPS to evaluate the company's current financial condition.
  2. Investing

    Zooming In On Net Operating Income

    NOI is a long-run profitability measure that smart investors can count on.
  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

    All About EVA

    Looking for a formula to determine whether a company is creating wealth? Time to learn all about economic value added.
  6. Active Trading

    The Importance Of Segment Data

    Key financials often fail to provide insight into large cap companies.
  7. Investing

    Finding Profit In Troubled Stocks

    Find out the difference between a company capable of surviving a share-price beating and one that cannot.
  8. Markets

    Understanding Economic Value Added

    Discover the simplicity of this important valuation metric. We reveal its underlying ideas and examine each of its components.
  9. Economics

    Understanding Cash and Cash Equivalents

    Cash and cash equivalents are items that are either physical currency or liquid investments that can be immediately converted into cash.
  10. Economics

    Explaining Carrying Cost of Inventory

    The carrying cost of inventory is the cost a business pays for holding goods in stock.
RELATED FAQS
  1. How does Net Operating Profit After Tax give a clearer view of the operating efficiency ...

    Net operating profit after tax (NOPAT) gives a clearer view of the operating efficiency of a company. While NOPAT is a measure ... Read Full Answer >>
  2. Why is it beneficial to use Net Operating Profit After Tax to compare companies within ...

    It is beneficial to use net operating profit after tax (NOPAT) to compare companies in the same industry, but with different ... Read Full Answer >>
  3. How can I use Net Operating Profit After Tax (NOPAT) to compare companies and make ...

    Since net operating profit after tax (NOPAT) is used to measure a company's operating income without the effects of capital ... Read Full Answer >>
  4. What is the difference between residual income and operational income?

    Residual income is usually calculated in the context of personal finances, as opposed to operating income, which is calculated ... Read Full Answer >>
  5. What is the difference between operating margin and gross margin?

    The difference between operating margin and gross margin centers around the difference between operating income and gross ... Read Full Answer >>
  6. Does gross profit include depreciation or amortization?

    Gross profit (sometimes called "gross margin") represents a company's sales revenue minus its cost of goods sold – in other ... Read Full Answer >>
  7. What are the differences between operating profit and operating income?

    Operating income and operating profit are synonyms for the income produced by operations in a business. This income is the ... Read Full Answer >>
  8. What's the difference between EBITDA, EBITDAR and EBITDARM?

    EBITDA, EBITDAR and EBITDARM are analytic indicators commonly used by management to evaluate the financial performance and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
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!