What is Operating Income?

Operating income refers to the adjusted revenue of a company after all expenses of operation and depreciation are subtracted. Expenses of operation, or operating expenses are simply the costs incurred in order to keep the business running. These may include rent, utilities, wages paid to employees, COGS, inventory and equipment costs – anything necessary to normal business operation.

To calculate operating income:

Operating Income = Gross Income – (Operating Expenses + Depreciation)

The operating income definition differs from that of net income in that operating income does not represent interest paid or collected, taxes, investments or specialized or one-time costs. Net income represents all business expenses, providing a more comprehensive view of a company’s profitability. These different figures reveal different qualities of a given business, and should be understood and considered separately.

Subscribe to the Sage Advice newsletter, and receive our latest advice direct to your inbox.