Operating income is the measure of profit realized from a business’s operations, after deducting operating expenses such as wages, depreciation, and cost of goods sold.
Operating income is important as it tells investors and company owners how much revenue will eventually become profit for a company and its an indirect measure of efficiency.
Formula to calculate operating income.
COGS is the cost of goods sold.
Example:
Company A realised a total revenue of $ 500,000, the cost of goods sold that year amounted to $ 250,000 and the total operating expense was worth $ 100,000. Calculate the company’s operating income.
Thus, the company’s operating income is $150,000.
