Operating Income

Operating income, also known as operating profit or EBIT, is a financial metric that measures the profitability of a company's core business operations before taking into account non-operating expenses and income such as interest, taxes, and one-time charges.

Operating income is calculated by subtracting operating expenses from operating revenue (net sales). Operating revenue includes all revenue generated from a company's primary business activities, while operating expenses include all costs associated with those activities, such as salaries, rent, utilities, and depreciation.

The formula for calculating operating income is:

Operating Income = Operating Revenue - Operating Expenses


Company XYZ generates $1 million in operating revenue from selling products, and incurs $600,000 in operating expenses such as salaries, rent, and utilities. The company's operating income can be calculated as:

Operating Income (EBIT) = Operating Revenue - Operating Expenses 

Operating Income = $1,000,000 - $600,000 = $400,000

This means that Company XYZ generated $400,000 in profits from its core business activities.