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How to Calculate Operating Income

💼 Want to know how profitable a business really is? Operating income tells you what’s left after running the show.

Operating income is one of the most important numbers in a company’s financials. It shows how much profit a business makes from its core operations, before interest and taxes are taken into account.

Let’s walk through what it is, why it matters, and how to calculate it with a simple formula and example.

🙋 What Is Operating Income?

Operating income (also known as operating profit or EBIT — Earnings Before Interest and Taxes) is the profit a business makes from its regular operations.

It tells you how well the company is doing at its main job — selling products or providing services — without the effects of debt or taxes.

Operating income answers the question:

“How much money is the business actually making from its operations?”

🧮 Operating Income Formula

Here’s the basic formula:

Operating Income = Revenue – Operating Expenses

Or more detailed:

Operating Income = Gross Profit – Operating Expenses

Where:

  • Revenue = total sales
  • Gross Profit = revenue minus cost of goods sold (COGS)
  • Operating Expenses = day-to-day expenses like rent, payroll, utilities, and marketing

Operating income does not include:

  • Interest payments
  • Taxes
  • One-time gains or losses

📋 Real-Life Example

Let’s say a company has the following:

  • Revenue = $500,000
  • Cost of Goods Sold (COGS) = $200,000
  • Operating Expenses = $180,000

Step 1:

Gross Profit = Revenue – COGS = $500,000 – $200,000 = $300,000

Step 2:

Operating Income = Gross Profit – Operating Expenses  
= $300,000 – $180,000 = $120,000

✅ The operating income is $120,000

Use the calculator below to make things easy.

📊 Operating Income Calculator

Built by onesdr.com

📈 Why Operating Income Matters

  • Shows how efficiently a company runs its operations
  • Helps compare companies in the same industry
  • Used by investors and lenders to assess profitability
  • Strips out non-operational factors (like taxes or interest)

✅ Quick Tips

  • Higher operating income = stronger core performance
  • It’s different from net income, which includes interest and taxes
  • Focuses only on the company’s main business activities
  • Great metric for spotting efficiency or cost control issues