Operating Income

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What is 'Operating Income'

Operating income is 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

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

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    Find out why operating margin and operating income can be treated synonymously with EBIT, but how they all differ from operating ... Read Answer >>
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    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?

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  4. 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 >>
  5. How do operating expenses affect profit?

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