Updated on March 12, 2023
Operating income is the income that a business earns from its primary operations. It is used as a tool to measure the profit or the operating performance of a business from its core operations. It does not take into consideration non-operating income/losses or taxes. It refers to the adjusted revenue of a company after operational expenses and depreciation are subtracted. Operating expenses are the costs incurred for keeping the business afloat. These can include inventory and equipment, rent, utilities, employee wages and cost of goods sold. Operating income is calculated as the difference between gross profit and operating expenses of the business.
How is Operating Income calculated?
Operating Income = Gross Profit – Operating Expenses + Depreciation
Operating Income can also be calculated with the help of sales :
Operating Income = Net Sales – Cost of Goods sold – Operating Expenses
The operating income calculation does not include interest paid or collected, taxes, investments or special costs or even one-time costs.