Operating income is a measure of how much profit a business makes from its core operations. It is calculated by subtracting the costs of producing and selling goods and services from the total revenue. It does not include any income or expenses from non-operating activities, such as interest, taxes, or dividends. Operating income is also known as EBIT (R0004) – earnings before interest and taxes.
The formula for operating income is:
Operating income = Net sales + Other operating income - Cost of goods sold - Other operating expenses - Depreciation - Amortization
Where:
- Revenue: The total amount of money earned from selling goods and services (IS001)
- Other operating income: Any other income related to the core operations of the business (F0003)
- Cost of goods sold: The total cost of making or buying the goods and services sold (IS003)
- Other operating expenses: The total cost of running the business, such as salaries, rent, utilities, etc. (F0004)
- Depreciation: The decrease in value of fixed assets over time
- Amortization: The decrease in value of intangible assets over time