Operating Income (EBIT)
Revenue minus the costs of the core business (cost of goods + selling/admin) — the profit that shows the core business's strength, before interest, taxes, and one-offs.
In plain terms
Operating income is revenue with only "the costs of running the core business" subtracted. On top of the cost to make the product, it removes selling and admin costs like advertising, wages, and rent. But interest, taxes, and one-off gains and losses are not yet taken out.
So operating income shows best "how well this company earns from its core business." It strips out factors outside the core business — like how much debt it carries (interest) or taxes — to see pure operating skill.
What it tells you
Operating income is the company's core-business fitness. By removing factors that differ by company and country, like interest and taxes, it lets core businesses be compared more fairly.
Operating income divided by revenue gives operating margin, and adding depreciation back gives EBITDA. Several key metrics branch out from operating income.
Formula
operating income = revenue − cost of goods sold − selling, general & admin expenses (= gross profit − selling/admin)
What high or low means
Steadily rising operating income is a sign the core business is strengthening. If operating income grows faster than revenue, it may be a phase where efficiency improves with scale (operating leverage at work).
If operating income is positive but net income is a loss, it can be read as a sign of heavy interest burden or a big loss outside the core business.
Which costs count as "operating" and how far they extend differs a bit by company. In particular, when a company reports a separate "adjusted operating profit" excluding some costs, it can look better than reality, so you need to check whether it is the accounting-standard figure.
Operating income includes non-cash costs like depreciation. So even with good operating income, actual cash flow can differ, and to see it on a cash basis you have to read operating cash flow and FCF together.
A one-off cost (restructuring, lawsuit) can press down a given quarter's operating income and make the margin drop sharply. Read several quarters' trend rather than one to see the real flow.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Operating and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.