Operating income, also known as operating profit or earnings before interest and taxes (EBIT), measures a company’s profitability from its core business operations. It reflects how efficiently a business generates profit from its regular activities, excluding the effects of financing and non-operational items.

The formula to calculate operating income is:
Operating Income = Gross Profit – Operating Expenses

Operating expenses include costs such as salaries, rent, utilities, marketing, and depreciation, but do not include interest payments or taxes.

For example, if a company earns a gross profit of $300,000 and has $150,000 in operating expenses, its operating income would be $150,000. This figure shows how much profit the company makes from its day-to-day operations before other financial costs are considered.

Operating income is a key metric for evaluating a company’s operational efficiency and profitability. It helps managers, investors, and analysts understand how well a company is controlling its core business costs and generating income from its main activities.

Unlike net income, which includes all expenses, operating income isolates performance from operations only. A strong operating income indicates that the core business is healthy and can generate profit independently of financial or one-time gains and losses.