What is Operating Income?
Operating Income Definition
Operating Income in Simple Terms
Gross income is a company’s revenue minus the cost of goods sold.
Operating expenses are any costs incurred from running a business, including selling, general, and administrative expenses (SG&A), depreciation, amortization, and other items such as office supplies and utilities.
Why Operating Income is Important
Operating income is required to calculate the operating margin of a company, which shows its operating efficiency.
More specifically, the operating income measurement forecasts how much of a company’s revenue will eventually become profit.
This measurement is also useful to investors because it does not include any taxes or one-off items that may skew the profit or net income of a company.
If a company’s operating income is growing, it shows that the management of the company is generating more revenue while controlling expenses, production costs, and overhead, and is heading in a positive direction.