Operating income
Factual definition
Operating income is operating revenue less the costs classified as operating expenses under the applicable accounting framework and presentation. It measures operating profit, but is not always identical to every measure labeled earnings before interest and taxes (EBIT).
Subtract SG&A when it includes all remaining operating costs
Hypothetical annual amounts in US$ millions: gross profit is 30.50 and selling, general and administrative expense (SG&A) is 24.69. Assume SG&A includes all remaining operating expenses after cost of sales and there are no other operating items.
Operating income is 30.50 − 24.69 = 5.81, or 5.8 rounded to one decimal.
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| Measure | Amount |
|---|---|
| Gross profit | 30.50 |
| SG&A | 24.69 |
| Operating income | 30.50 − 24.69 = 5.81 |
| Rounded operating income | 5.8 to one decimal |
Do not stop at SG&A if another operating line remains
The SEC’s income-statement guide treats operating profit as the subtotal after operating expenses. Which costs are already inside COGS or SG&A must be clear before another deduction is made.
Hypothetical annual statement, US$ millions: gross profit is 4.0, SG&A is 2.0 and separately reported research-and-development expense is 0.6. Assume all three use the same period, R&D is classified as operating, no R&D is included in SG&A, and no other operating items remain.
Operating income is 4.0 −2.0 −0.6 =1.4. Subtracting only SG&A would overstate it by 0.6.
Request the statement notes and general-ledger mapping when comparing that subtotal with a seller’s adjusted measure. The label “operating” does not establish that a cost is nonrecurring, avoidable or noncash.
Where Operating income fits
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