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Operating Income: Definition and Meaning
Definition
Operating income is profit from normal operations before interest and income taxes, generally calculated after operating expenses are deducted from gross profit.
Why It Matters
Operating income helps distinguish the results of core business operations from financing and tax effects. It can help management assess whether the company’s principal activities are generating enough profit to support debt, taxes, capital investment, and owner goals.
The precise calculation may vary depending on the company’s financial-statement presentation and the items included in operating activities.
Example
A company earns $80,000 of gross profit and incurs $50,000 of operating expenses. Its operating income is $30,000 before interest and taxes.
Related Terms
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