How Do You Calculate Operating Income – Cost Calculator

Operating Income Calculator

Total Revenue ($)

Cost of Goods Sold (COGS) ($)

SG&A Expenses ($)

Depreciation & Amortization ($)

Results

Gross Profit: $0.00

Total Operating Expenses: $0.00

Operating Income (EBIT): $0.00

Operating Margin: 0.00%

Understanding Operating Income

Operating income is a critical profitability metric that measures the amount of profit a company generates from its core business operations, excluding interest and taxes. It is often referred to as Earnings Before Interest and Taxes (EBIT).

The Operating Income Formula

The standard formula to calculate operating income is:

            Operating Income = Gross Profit – Operating Expenses
        

Alternatively, you can calculate it directly from total revenue:

            Operating Income = Total Revenue – COGS – (SG&A + Depreciation + Other OPEX)
        

Key Components Explained

Total Revenue: All income generated from sales of products or services.
Cost of Goods Sold (COGS): Direct costs attributable to the production of the goods sold (materials, direct labor).
Gross Profit: Revenue minus COGS. This represents how much is left to cover operating costs.
SG&A Expenses: Selling, General, and Administrative expenses (rent, marketing, office salaries).
Depreciation & Amortization: Non-cash expenses that spread the cost of an asset over its useful life.

Practical Example

Suppose a retail business has the following financials:

Revenue: $1,000,000
COGS: $400,000
Gross Profit: $600,000
Rent and Salaries: $250,000
Marketing: $50,000
Depreciation: $20,000

Calculation: $600,000 (Gross Profit) – ($250,000 + $50,000 + $20,000) = $280,000 Operating Income.

Why Is It Important?

Operating income allows investors and managers to see how efficient a company's business model is without the "noise" of tax jurisdictions or financing structures (interest). A rising operating income suggests a company is becoming more efficient at managing its core costs relative to sales.