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:
Investopedia Says:
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.
Related Links:
NOI is a long-run profitability measure that smart investors can count on. Zooming In On Net Operating Income
Find out how to put this important component of equity analysis to work for you. Analyzing Operating Margins
Learn how to use revenue and expenses, among other factors, to break down and analyze a company. Understanding The Income Statement
Find out the difference between a company capable of surviving a share-price beating and one that cannot. Finding Profit In Troubled Stocks
Key financials often fail to provide insight into large cap companies. The Importance Of Segment Data
Discover the simplicity of this important valuation metric. We reveal its underlying ideas and examine each of its components. Understanding Economic Value Added
What's the difference between EBITDA, EBITDAR and EBITDARM?
Looking for a formula to determine whether a company is creating wealth? Time to learn all about economic value added. All About EVA
Copyright ©2010, Investopedia.com - Owned and Operated by Investopedia US, A Division of ValueClick, Inc. All rights reserved.
