Operating Income Definition

Definition

The monetary accounting period operating income can be a measure of an organizations capability to make money from ongoing operations. Operating income appears as a line item in the earnings statement, and offers a way of measuring sustainability before interest expense and income taxes have been all removed.

Calculation

Operating Income = Revenues – Operating Expenses

Where

  • Operating Expenses = COGS SGA Depreciation and Amortization Other

Explanation

Operating income can be just a step of profitable operations before interest expense, or taxes, are all paid. Operating income is occasionally called operating earnings, profit before interest and taxes, or EBIT. Running income eliminates from earnings the expense of goods sold; selling, administrative and general expenses; depreciation and depreciation; and other operating expenses.

Unlike net gain, operating profit excludes interest expense, and it is really a function of the sum of debt that the firm is using as a portion of its funding structure. By excluding interest expense, investors and analysts have the ability to dismiss the impact leverage has to the provider ‘s profitability.

Example

The table below illustrates how the calculation of working income will seem to Company A’s income announcement:

Total Revenue 29,611,000
Cost of Goods Sold (15,693,000)
Gross Profit 13,918,000
Operating Expenses
Selling General and Administrative (7,740,000)
Operating Income or Loss 6,178,000