operating income

Examples of operating income in the following topics:

• Operating Margin

  • The operating margin is a ratio that determines how much money a company is actually making in profit and equals operating income divided by revenue.
  • It is found by dividing operating income by revenue, where operating income is revenue minus operating expenses .
  • That means that it does not include things like interest and income tax expenses.
  • Since non-operating incomes and expenses can significantly affect the financial well-being of a company, the operating margin is not the only measurement that investors scrutinize.
  • The operating margin is found by dividing net operating income by total revenue.

• Basic Earning Power (BEP) Ratio

  • The purpose of BEP is to determine how effectively a firm uses its assets to generate income.
  • This may seem remarkably similar to the return on assets ratio (ROA), which is operating income divided by total assets.
  • EBIT, or earnings before interest and taxes, is a measure of how much money a company makes, but is not necessarily the same as operating income:
  • The distinction between EBIT and Operating Income is non-operating income.
  • Since EBIT includes non-operating income (such as dividends paid on the stock a company holds of another), it is a more inclusive way to measure the actual income of a company.

• Times-Interest-Earned Ratio

  • Interest Charges = Traditionally "charges" refers to interest expense found on the income statement.
  • EBIT = Earnings Before Interest and Taxes, also called operating profit or operating income.
  • EBIT is a measure of a firm's profit that excludes interest and income tax expenses.
  • It is the difference between operating revenues and operating expenses.
  • When a firm does not have non-operating income, then operating income is sometimes used as a synonym for EBIT and operating profit.

• Leverage Models

  • Operating leverage models include ratios, such as fixed costs to variable costs/total costs, fixed costs to income, and the DOL.
  • Another common way of defining operating leverage is by dividing total fixed costs by operating income, or EBIT (earnings before interest and taxes).
  • The DOL is an attempt to estimate the percentage change in operating income for a corresponding percentage change in revenue.
  • The Degree of Operating Leverage is closely related to the rate of increase in the operating margin, which is the ratio of operating income to net revenue.
  • Operating leverage is equal to total fixed costs divided by operating income.

• Defining Operating Leverage

  • Operating leverage is a measure of how revenue growth translates into growth in operating income.
  • Operating leverage is also a measure of how revenue growth translates into growth in operating income.
  • Therefore, companies with low output would not benefit from increased operating leverage.
  • Various measures can be used to interpret operating leverage.
  • Therefore, its operating income increases more rapidly with sales than a company with lower fixed costs (and correspondingly lower contribution margin).

• Defining the Income Statement

  • Income statement, also referred to as profit and loss statement (P&L), revenue statement, statement of financial performance, earnings statement, operating statement or statement of operations, is a company's financial statement that indicates how the revenue (cash or credit sales of products and services before expenses are taken out) is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or "bottom line").
  • The income statement can be prepared in one of two methods.
  • It then calculates operating expenses and, when deducted from the gross profit, yields income from operations.
  • Adding to income from operations is the difference of other revenues and other expenses.
  • When combined with income from operations, this yields income before taxes.

• Earnings per Share

  • In the United States, the Financial Accounting Standards Board (FASB) requires that companies' income statements report EPS for each of the major categories of the income statement: continuing operations, discontinued operations, extraordinary items, and net income.
  • The EPS formula does not include preferred dividends for categories outside of continued operations and net income.
  • Earnings per share for continuing operations and net income are more complicated; any preferred dividends are removed from net income before calculating EPS.
  • To find diluted EPS, basic EPS is first calculated for each of the categories on the income statement.
  • Morningstar reports diluted EPS "Earnings/Share $" (net income minus preferred stock dividends divided by the weighted average of common stock shares outstanding over the past year).

• Income Statements

  • Income statement (also referred to as profit and loss statement [P&L]), revenue statement, a statement of financial performance, an earnings statement, an operating statement, or statement of operations) is a company's financial statement.
  • It then calculates operating expenses and, when deducted from the gross profit, yields income from operations.
  • Adding to income from operations is the difference of other revenues and other expenses.
  • When combined with income from operations, this yields income before taxes.
  • Other expenses or losses - expenses or losses not related to primary business operations, (e.g., foreign exchange loss).

• Elements of the Income Statement

  • First, operating expenses are subtracted from gross profit.
  • This yields income from operations.
  • The operating section includes revenue and expenses.
  • The non-operating section includes revenues and gains from non- primary business activities (such as rent or patent income); expenses or losses not related to primary business operations (such as foreign exchange losses); gains that are either unusual or infrequent, but not both; finance costs (costs of borrowing, such as interest expense); and income tax expense.
  • In essence, if an activity is not a part of making or selling the products or services, but still affects the income of the business, it is a non-operating revenue or expense.

• Extraordinary Gains and Losses

  • Extra gains or losses are nonrecurring, onetime, unusual, non-operating gains or losses that are recorded by a business during the period.
  • They are nonrecurring, onetime, unusual, non-operating gains, or losses that are recorded by a business during the period.
  • (IAS 1.87) The amount of each of these gains or losses, net of the income tax effect, is reported separately in the income statement.
  • Net income is reported before and after these gains and losses.
  • This income statement is a very brief example prepared in accordance with IFRS; no extraordinary items are presented.