Glossary
Operating income
Gross profit minus operating expenses such as research, sales and administration; profit from the core business.
On this page
Operating income is the profit a company makes from its main business before interest and taxes. It starts with revenue, subtracts the direct cost of what was sold, and then subtracts the costs of running the company, such as research and development, sales and marketing, and general and administrative expenses. Because it leaves out how the company is financed and taxed, it is a cleaner way to compare how well different businesses actually operate.
How it is calculated
Operating income versus EBIT and EBITDA
Operating income and EBIT are often treated as the same number, but they can differ. EBIT as analysts calculate it may include non-operating items such as gains on investments or currency effects, which companies report below operating income. EBITDA goes further, adding back depreciation and amortization.
What to watch for
Companies classify costs differently, so check what sits inside "operating expenses" before comparing two businesses. Restructuring charges, impairments and litigation costs often fall within operating income and can make a single year look worse than the ongoing business; one-time gains can do the reverse. Following operating income over several years, alongside revenue, shows whether a company is gaining or losing efficiency as it grows.