Reading the accounts
Operating income
Also called EBIT or Operating profit
Profit from the core business, before interest and tax.
How it works
Operating income strips out how the company is financed and what tax regime it sits in, leaving the performance of the business itself.
It is the fairest profit line for comparing companies with different debt levels or in different countries.
Formula
Operating income = revenue − cost of goods sold − operating expensesRelated terms
- Operating marginOperating income as a percentage of revenue — how much of each sale survives running the business.
- EBITDAEarnings before interest, tax, depreciation and amortisation — a rough proxy for operating cash generation.
- Net incomeWhat is left after every cost, including interest and tax — the profit belonging to shareholders.
- Operating expensesThe costs of running the business that are not tied directly to producing each unit sold.
Mentioned in
More in Reading the accounts
- Operating leverage
- Operating cash flow
- Organic growth
- Off-balance-sheet
- Owner earnings
- Net margin
- Return on equity
- Return on invested capital
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.