Operating Income

Operating income shows how much the business earns from what it actually does: making and selling products or providing services. It excludes interest on debt and income taxes, which depend on how the company is financed and where it operates, and usually excludes one-off gains or losses from activities outside the main business.

For example, a company with revenue of 2,000,000, cost of goods sold of 1,200,000 and operating expenses of 500,000 has operating income of 300,000.

Because it focuses on the core business, operating income is useful for comparing companies with different amounts of debt or different tax situations. It is also used to calculate operating margin, which is operating income divided by revenue. Here, the operating margin is 15%.

Operating income is often similar to EBIT, earnings before interest and taxes. The two can differ when a company has income or expenses that are not part of its operations but are included before interest and tax, such as gains from selling an investment.