Operating Income represents the ordinary profit from a company’s core operations, resulting in the application of a company’s business model and strategies, but before payments to owners of capital, returns on investments and payments of income taxes.
Operating income is important because it is an indirect measure of efficiency. It shows a business’s ability to generate earnings from its operational activities. Many business owners use the operating income figure to measure the operational successes of their business.
It is calculated by subtracting Operating Expenses (excl. COGS) from the Gross Profit.