Operating income, also known as operating profit or operating earnings, is the profit a company generates from its core business operations, excluding expenses like taxes, interest, and non-operational gains or losses. It is calculated by subtracting operating expenses (OpEx) from gross profit, providing a clear measure of a company’s profitability from its primary activities.
How is operating income calculated?
Operating Income = Gross Profit – Operating Expenses (OpEx) For example, if a startup has a gross profit of €100,000 and operating expenses of €60,000, the operating income would be: €100,000 – €60,000 = €40,000 This means the startup has €40,000 in profit from its primary business operations.
Why is operating income important for startups?
Operating income is essential for startups because it shows how effectively they manage costs relative to their revenue. Positive operating income indicates that the business is profitable from its core activities, which is critical for sustainability. It also helps investors and stakeholders assess the startup’s financial health and operational efficiency.
How does operating income differ from net income?
Operating income focuses solely on profit from a company’s main operations, excluding taxes, interest, and other non-operational items. Net income, on the other hand, accounts for all revenues, expenses, taxes, and non-operational gains or losses, providing a comprehensive view of the company’s overall profitability.
What factors can affect a startup’s operating income?
Operating income can be influenced by factors such as revenue growth, cost of goods sold (COGS), and operating expenses like salaries, rent, and marketing. Startups with high operating expenses or inefficient cost management may see lower operating income, even if their revenue is growing.
Or want to know more about pre-seed funding?
