The Income|Outcome^® Contextuary

Operating Income calculation: Sales less COS less Operating Expense.

Operating Margin ratio: Operating Income as a percentage of Sales.

Example: The Round Number Company Sales = 200; COGS = 80; OpEx = 72 Operating Income = 200 - 80 - 72 = 48 Operating Margin or Operating Profit Margin = 48/200 = 24 %

Operating Income is the amount of Profit available after deducting from Sales the costs associated with the operations of the company (Cost of Sales, Operating Expenses), but before paying finance charges and taxes.

Operating Margin is the portion of Sales that remains after covering the Direct Costs and Operating Expenses. It is also called Operating Profit Margin, a variant of Return On Sales that only considers revenues and expenses that are controlled by the manager(s).

Operating Income is considered a useful management measure because it considers the revenue and expenses that are the manager's responsibility, but does not take into account the finance expense and taxes (which managers do not control).

“What do you mean by that?”

Operating Income is one of many possible finance terms for the same concept. It can also be known as:

• Earnings Before Interest and Tax (EBIT),
• Operating Profit,
• Profit Before Interest and Tax (PBIT) in the UK,
• Result No. 3 in Germany,
• The Primary Result in Denmark.

  For a DIY Income Statement Calculator, including Operating Income and Operating Margin, go here.