Operating Income Calculator
Enter values and click "Calculate" to see the results.
Understanding Operating Income
Operating income is a crucial financial metric that indicates how much profit a company makes from its core operations before accounting for interest and taxes. It's a key indicator of a company's operational efficiency and profitability.
How is it Calculated?
The calculation of operating income involves two primary steps:
- Gross Profit: This is calculated by subtracting the Cost of Goods Sold (COGS) from Sales Revenue. COGS includes the direct costs attributable to the production of the goods or services sold by a company.
- Operating Income: From the Gross Profit, you then subtract all Operating Expenses. These expenses are incurred in the normal course of business operations, such as selling, general, and administrative (SG&A) expenses, research and development (R&D), and depreciation and amortization.
The formula is:
Operating Income = Sales Revenue – Cost of Goods Sold – Operating Expenses
Or, more commonly:
Operating Income = Gross Profit – Operating Expenses
Why is Operating Income Important?
Operating income helps investors and analysts understand a company's profitability from its core business activities, isolating it from non-operating factors like financing costs (interest) and tax obligations. A higher operating income generally indicates a more efficient and profitable core business.
Using the Calculator
Simply input your company's Sales Revenue, Cost of Goods Sold (COGS), and Total Operating Expenses into the respective fields. The calculator will then provide you with both the Gross Profit and the final Operating Income, giving you a clear picture of your operational performance.
Example:
Let's say a company has:
- Sales Revenue: $500,000
- Cost of Goods Sold (COGS): $200,000
- Total Operating Expenses: $150,000
First, calculate Gross Profit:
Gross Profit = $500,000 – $200,000 = $300,000
Then, calculate Operating Income:
Operating Income = $300,000 – $150,000 = $150,000
This indicates the company made $150,000 from its core operations before interest and taxes.