Operating Income


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


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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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  5. Continuing Operations

    Continuing operations is a business term used to describe the ...
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    The portion of an organization's income that is derived from ...
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  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. 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 >>
  7. 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 >>
  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 >>

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