Loading the player...

What is 'Operating Income'

Operating income is an accounting figure that measures the amount of profit realized from a business's operations, after deducting operating expenses such as cost of goods sold (COGS), wages and depreciation. Operating income takes a company's gross income, which is equivalent to revenue minus COGS, and subtracts all operating expenses and depreciation. A business's operating expenses are costs incurred from operating activities and include items such as office supplies, heat and electricity.

BREAKING DOWN 'Operating Income'

Operating income is a measurement that shows how much of a company's revenue will eventually become profit. Operating Income is a synonym for earnings before interest and taxes (EBIT) and is also referred to as "operating profit" or "recurring profit."

Operating income is calculated as: Operating income = gross income - operating expenses - depreciation - amortization

The measure of operating income excludes items such as investments in other firms, taxes and interest expenses. In addition, nonrecurring items such as cash paid for a lawsuit settlement are not included. Operating income is required to calculate operating margin, which describes a company's operating efficiency. For more information on the use of operating income in margin calculations, check out Analyzing Operating Margins

Examples of Operating Income

Many companies focus on operating income when measuring the operational success of the business. For example, Boston-based Dana-Farber Cancer Institute reported on June 15, 2016, that the organization saw its operating income increase by 20% year over year to $27.3 million in the first two quarters of its fiscal year. The company realized increased revenue and operating income by extension due to an increase in patient volume over the two quarters, ending March 31, 2016. The rise in patient visits was driven by two of the company's new immunotherapy drugs. One treats lung and renal cell cancer and the other treats melanoma.

Denali Holding, Inc., the parent company of Dell Technologies, reported its financial results for the first quarter of its fiscal year, ending April 29, 2016. The company saw operating income rise by 37% when compared to the same period in the previous year. The report of the increase in operating income is especially important because the company is looking to merge with EMC, and shareholders are slated to vote on the potential merger on July 19, 2016. While Denali Holding, Inc.'s first quarter sales dropped by 3%, its operating performance could potentially give EMC shareholders confidence in voting to merge the two companies.

RELATED TERMS
  1. Income From Operations - IFO

    The profit realized from a business' own operations. Income from ...
  2. Operating Loss - OL

    The net loss recorded as a result of a company's unprofitable ...
  3. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  4. Operating Earnings

    Profit earned after subtracting from revenues those expenses ...
  5. Operating Ratio

    A ratio that shows the efficiency of a company's management by ...
  6. Operating Profit

    The profit earned from a firm's normal core business operations. ...
Related Articles
  1. Investing

    Operating Income

    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.
  2. Investing

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.
  3. 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 ...
  4. Investing

    Gross, Operating and Net Profit Margins

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

    Operating Profit

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

    Net Operating Income

    Net operating income (NOI) reflects income after operating expenses are deducted, but before income taxes and interest are deducted.
  7. Investing

    What is Operating Revenue?

    Operating revenue is income that’s derived from sources related to a company’s everyday business operations.
  8. Investing

    Understanding the Income Statement

    The best way to analyze a company—and figure out if it's worth investing in—is to know how to dissect its income statement. Here's how to do it.
  9. Investing

    Calculating Operating Ratio

    An operating ratio compares a company’s operating expenses to its net sales.
  10. 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.
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 is the difference between Operating Cash Flow and Net Operating Income (NOI)?

    Learn what operating cash flow and net operating income are, how the two metrics are calculated and the main difference between ... Read Answer >>
  3. 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 ... Read Answer >>
  4. 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 >>
  5. What is the difference between operating income and revenue?

    Understand the definitions of revenue and operating income, how they are calculated and interpreted, and how operating income ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center