Operating Profit

Understanding Operating Profit 

Operating profit refers to the profit gained from a company's primary business activities. It dismisses interest, tax deductions, and income from other company investments. When the revenue from the main business is less than its costs, operating losses occur. 

Interpreting and Calculating Operating Profit 

Operating profit offers an accurate view of a company's health, as it only includes necessary business expenses like depreciation and amortization from operations. It is also known as operating income or earnings before interest and tax (EBIT), which can be misleading as EBIT may include non-operating income. 

To compute operating profit, subtract the cost of goods sold (COGS) and operating expenses from the revenue. COGS includes direct costs like raw materials and labor. Operating expenses cover indirect costs like rent and payroll. Operating profit doesn't consider income or expenses not related to primary business activities.