What is Operating Income?
A company’s operating income is a monetary measure of how much profit it has made from its operations after subtracting salaries, depreciation, and sales costs (COGS).
- The amount of profit made by a company’s continuous activities is reflected in operating income.
- Operating income is calculated by deducting all operating expenditures from gross income, equal to total revenue minus the cost of goods sold (COGS).
- Because taxes and other one-time expenses can distort a company’s earnings in a given year, looking at operating income is beneficial to investors.
Operating Income Vs Gross Profit
- Costs are subtracted from revenue to get operating revenue, while revenue is subtracted from operating expenses to get net income.
- Selling, general and administrative (SG&A) expenditures, and depreciation and amortization, are all included in operating income.
- A company’s net income (also known as the net profit or bottom line) may also include other sources of revenue, such as interest or the sale of assets.
- Operating Income Vs Gross Profit Formula :
Operating income = Gross Income – Selling & Admin expenses
How To Calculate Operating Income
Operating Income = Gross Income – Operating Expenses
Operating Income = Net revenue – COGS – Operating Expenses
Is Equity Income Operating Income?
The remaining portion of a company’s revenue after all costs have been paid is known as net income. The difference between firm assets and liabilities is called owner equity. Retained earnings, a balance sheet item that accumulates net income, connect net income and owner’s equity.