acalculator

How much is my operating income?

Enter the lines from the top of an income statement. The calculator takes returns off sales, then the cost of sales, then operating expenses and depreciation, and shows operating income at each step.

Your numbers

Operating income
$43,000.00

Revenue of $126,000.00 gives net revenue of $120,000.00, gross profit of $60,000.00 and operating income of $43,000.00.

Net revenue
$120,000.00
Gross profit
$60,000.00
Total operating expenses
$17,000.00
Operating margin
35.83%

Operating income: $43,000.00. Revenue of $126,000.00 gives net revenue of $120,000.00, gross profit of $60,000.00 and operating income of $43,000.00.

The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use

How to calculate

Computes operating income (income from operations): net revenue minus cost of sales and operating expenses, with gross profit and the operating margin.

Example with the default inputs (Revenue (gross sales) $126,000.00, Returns, allowances and discounts $6,000.00, Cost of sales $60,000.00, Operating expenses $13,400.00, Depreciation and amortization $3,600.00): Revenue of $126,000.00 gives net revenue of $120,000.00, gross profit of $60,000.00 and operating income of $43,000.00.

Method: Net revenue = gross sales − returns, allowances and discounts. Gross profit = net revenue − cost of sales. Operating income = gross profit − operating expenses − depreciation and amortization. Operating margin = operating income ÷ net revenue × 100.

  • All amounts are for the same period, from one income statement.
  • Operating expenses leave out interest and income tax, which come after operating income.
  • Arithmetic is exact on the typed decimals; money shows to the cent and the margin to 2 decimals, halves up.

Machine-readable copies: Markdown, JSON.

Worked examples

Each example is checked against the calculator on every build.

  1. Revenue (gross sales) $126,000.00, Returns, allowances and discounts $6,000.00, Cost of sales $60,000.00, Operating expenses $13,400.00, Depreciation and amortization $3,600.00 gives Operating income $43,000.00, Net revenue $120,000.00, Gross profit $60,000.00, Total operating expenses $17,000.00, Operating margin 35.833333%.Source: U.S. Securities and Exchange Commission, Beginners’ Guide to Financial Statements (net revenues, gross profit, then operating expenses and depreciation deducted to give income from operations). https://www.sec.gov/about/reports-publications/beginners-guide-financial-statements; OpenStax, Principles of Finance, 5.1 The Income Statement (Clear Lake Sporting Goods: gross sales $126,000, returns $6,000, cost of goods sold $60,000, rent $5,500, utilities $2,500, salaries $5,400, depreciation $3,600, operating income $43,000). https://openstax.org/books/principles-finance/pages/5-1-the-income-statement: 126,000 − 6,000 = 120,000
  2. Revenue (gross sales) $105,000.00, Returns, allowances and discounts $5,000.00, Cost of sales $50,000.00, Operating expenses $9,500.00, Depreciation and amortization $2,500.00 gives Operating income $38,000.00, Net revenue $100,000.00, Gross profit $50,000.00, Total operating expenses $12,000.00, Operating margin 38%.Source: OpenStax, Principles of Finance, 5.1 The Income Statement (Clear Lake Sporting Goods: gross sales $126,000, returns $6,000, cost of goods sold $60,000, rent $5,500, utilities $2,500, salaries $5,400, depreciation $3,600, operating income $43,000). https://openstax.org/books/principles-finance/pages/5-1-the-income-statement (prior year: gross sales $105,000, returns $5,000, cost of goods sold $50,000, depreciation $2,500, operating income $38,000)
  3. Revenue (gross sales) $48,250.75, Cost of sales $31,400.25, Operating expenses $19,000.50 gives Operating income -$2,150.00, Net revenue $48,250.75, Gross profit $16,850.50, Operating margin -4.455889%.
  4. Revenue (gross sales) $0.00, Cost of sales $0.00, Operating expenses $25,000.00 gives Operating income -$25,000.00, Net revenue $0.00, Gross profit $0.00.

How it works

  • Net revenue = revenue (gross sales) − returns, allowances and discounts
  • Gross profit = net revenue − cost of sales
  • Total operating expenses = operating expenses + depreciation and amortization
  • Operating income = gross profit − total operating expenses
  • Operating margin = operating income ÷ net revenue × 100

Rules:

  • Every amount is $0 or more and at most $1 quadrillion. Returns and depreciation are optional; an empty box counts as $0.
  • Returns, allowances and discounts larger than the sales give no answer.
  • The operating margin shows only when net revenue is more than $0. A margin too large to show as a number gives no answer. So does a margin that is not 0 but too small to show as a number.
  • The arithmetic is exact on the decimals you type. Money shows to the cent and the margin to 2 decimals, with halves rounded up (away from 0).

Assumptions

  • All amounts are for the same period, from one income statement.
  • Operating expenses leave out interest and income tax. Those come after operating income, on the way to net income.
  • If your operating expenses already include depreciation, leave the depreciation box empty so it is not taken off twice.

Worked examples by hand

Clear Lake Sporting Goods, current year. Gross sales $126,000 less $6,000 of returns and allowances is $120,000 of net revenue. Less $60,000 cost of goods sold is $60,000 of gross profit. Operating expenses are rent $5,500, utilities $2,500 and salaries $5,400 ($13,400), plus $3,600 of depreciation: $17,000 in all. Operating income = 60,000 − 17,000 = $43,000, an operating margin of 43,000 ÷ 120,000 × 100 = 35.83%.

Clear Lake Sporting Goods, prior year. Net revenue = 105,000 − 5,000 = $100,000. Gross profit = 100,000 − 50,000 = $50,000. Operating expenses are $12,000, of which $2,500 is depreciation. Operating income = 50,000 − 9,500 − 2,500 = $38,000, a margin of 38%.

An operating loss. Net revenue $48,250.75, cost of sales $31,400.25, operating expenses $19,000.50. Gross profit = $16,850.50. Operating income = 16,850.50 − 19,000.50 = −$2,150, a margin of −2,150 ÷ 48,250.75 × 100 = −4.46%.

No sales yet. Revenue $0 and $25,000 of operating expenses give an operating loss of −$25,000. There is no margin on $0 of net revenue.

Other questions people ask

What is operating income?

Operating income, also called income from operations or operating profit, is what a business earns from its main activity. It is revenue minus the cost of sales and the operating expenses, before interest and income tax.

How do I calculate operating income?

Start with net revenue, subtract the cost of sales to get gross profit, then subtract operating expenses and depreciation. Clear Lake Sporting Goods had net sales of $120,000, cost of goods sold of $60,000 and $17,000 of operating expenses, so its operating income was $43,000.

What counts as an operating expense?

Costs of running the business that are not part of making the product: salaries of office staff, rent, utilities, marketing, research and depreciation. The SEC's guide notes that these costs cannot be linked directly to the goods or services sold.

Is operating income the same as EBIT?

Often, yes. Operating income is earnings before interest and taxes when a company has no other income or expenses outside its operations. If it has gains, losses or investment income below operating income, EBIT and operating income differ by those items.

How is operating income different from net income?

Net income comes after interest and income tax. Clear Lake had operating income of $43,000, paid $2,000 of interest and $6,000 of income tax, and so had net income of $35,000.

Can operating income be negative?

Yes. If the cost of sales and operating expenses are more than net revenue, the business has an operating loss. Net revenue of $48,250.75 with $50,400.75 of costs gives an operating loss of $2,150.