The profit a business earns from its core operations after subtracting operating expenses from gross profit, without including income from non-operational activities.
What is Operating Income?
Operating income, also called operating profit or EBIT (Earnings Before Interest and Taxes), measures how much profit a company generates from its regular business activities. It is calculated by taking the company’s gross profit (revenue minus cost of goods sold) and subtracting operating expenses such as rent, utilities, salaries, marketing, and insurance. It does not include income or expenses from investments, interest, or taxes.
This metric shows the profitability of the company’s core business operations and is an important indicator of operational efficiency. A high operating income means the company is able to cover its daily expenses while maintaining healthy profit margins from its primary activities.
For non-U.S. founders with U.S. companies, tracking operating income is useful for understanding how well the business is performing independently of financing or tax considerations. Investors, lenders, and potential buyers often look at operating income to evaluate the financial health and sustainability of a company.
In short, operating income answers the question: “How profitable is the company’s core business before considering interest and taxes?” and is a key measure in assessing long-term operational success.
