A:

Operating income and operating profit are synonyms for the income produced by operations in a business. This income is the net of revenues minus operating expenses, cost of goods sold and depreciation reported on a company's income statement. Operating income/profit is an important number for investors to review on the income statement, as it shows how efficiently the company generates a profit.

Net income, calculated later in the income statement, incorporates taxes and other factors the company has little control over, while its operation expenses can be manipulated in ways to increase profit margins. Investors view this part of the income statement as the most important, because it can be directly compared with operating profit from competitors. For example, if Company A, a candle maker, records an operating profit of $3 million for the year, while Company B, also a candle maker, records an operating profit of only $1.5 million, an investor can make a decision as to which company makes the most from candle sales. If the investor expects candle sales to rise, he or she has a better chance for higher profit investing in Company A.

Many analysts emphasize the importance of operating profit over net profit, simply because it shows the core of the business and how well it can perform. Net profit can be influenced by many different variables from year to year, but if operating profit steadily increases, an investor knows the business is on the right track. Operating profit numbers are also key for determining how a change in the market for a business' main resources affect its production numbers.

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