Yatırımcı.AI

Operating profit

Operating profit is the profit from the company’s core business after deducting selling, administrative and R&D expenses from gross profit. Operating profit shows how profitable operations are before financial income and expenses and tax.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key points

  • Because it is independent of capital structure it is more reliable than net profit for comparing companies.
  • Operating profit growing faster than sales shows economies of scale; growing slower shows cost control problems.
  • "other operating income" can include FX and discount income and inflate operating profit.

Formula / calculation

Operating profit = Gross profit − Operating expenses (selling, administrative, R&D) ± Other operating income/expense. Operating margin = Operating profit / Sales × 100. EBITDA is operating profit plus depreciation.

Interpretation

Operating profit growing faster than sales shows economies of scale; growing slower shows cost control problems. A wide gap between operating and net profit points to heavy financing costs or FX effects.

Pitfalls

"other operating income" can include FX and discount income and inflate operating profit. One-off items should be stripped out. Depreciation policies differ across companies.

Pages where this term appears

Related terms

Frequently asked questions

Operating profit is the profit from the company’s core business after deducting selling, administrative and R&D expenses from gross profit.

Operating profit = Gross profit − Operating expenses (selling, administrative, R&D) ± Other operating income/expense. Operating margin = Operating profit / Sales × 100. EBITDA is operating profit plus depreciation.

Yatırımcı.AI ResearchMethodology