What Do You Mean By Operating Income and How to Calculate?

operating income

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.