What is “Operating Profit”?

Operating profit is a financial metric that measures the profitability of a business’s core operations. It’s calculated by subtracting operating expenses (like wages and cost of goods sold) from gross profit. This figure excludes any non-operating income or expenses, such as interest payments or tax costs. Operating profit is often referred to as operating income or EBIT (Earnings Before Interest and Taxes).

Example

"By analyzing the operating profit of the company, we can see that their core business operations are performing well, even though other income streams are less profitable."

How is “Operating Profit” Used in Business?

In business, operating profit is a key indicator of a company’s financial health and its ability to generate profits from its primary activities. It is widely used by investors, analysts, and business owners to assess a company's operational efficiency. A higher operating profit suggests a company is effectively managing its costs and generating strong revenue from its core business.

Pro Tip

Always compare operating profit margins to industry benchmarks to understand how efficiently your business operates in relation to competitors. A sudden decrease in operating profit may signal operational inefficiencies or rising costs.