Month End Glossary

Operating Profit

Operating profit, often referred to as operating income, is the financial result of a company's revenue minus its direct operating expenses, excluding interest and taxes.

Operating profit, also known as operating income, represents the profit generated by a business from its core operational activities, excluding any financial or ancillary income and expenses such as interest and taxes. It is calculated as a company's revenue minus its direct operating costs, such as cost of goods sold (COGS), wages, and administrative expenses. For example, if a company reports a revenue of $1,000,000 and its direct operating expenses are $600,000, the operating profit would amount to $400,000. This metric is essential for assessing a company's core business performance and efficiency in generating profits from its operations. Unlike net profit, operating profit focuses solely on operational efficiency and disregards external financial factors. High operating profit typically indicates an efficient business system and good management control. Conversely, low or negative operating profit flags inefficiencies or challenges in managing operational costs. It is distinct from other profitability metrics like net profit and gross profit, making it a critical figure for stakeholders evaluating a company's financial health. In practical use, a stakeholder might say, "The company is performing well, as evidenced by a consistent increase in its operating profit over the past quarters." This highlights its importance in financial forecasting and decision-making.

Related Terms

Make your next Month End easy.
Start your free trial today.

Your first Month End free. We’ll import your existing checklist. It’s 2025 - time to get control of your Month End close process!