Operating Income vs. Net Income: An Overview

Operating income and net income both show the income earned by a company, but the two represent distinctly different ways of expressing a company’s earnings.

Both metrics have their merits but also have different 澳洲幸运5官方开奖结果体彩网:deductions and credits involved in their calculations. It’s in the analysis of the two numbers thatꦗ investors can determine where in the process a company begꦚan earning a profit or suffering a loss.

Operating Income

澳洲幸运5官方开奖结果体彩网:Operating income is a company’s profit after deducting 澳洲幸运5官方开奖结果体彩网:operating expenses, which are the costs of running day-to-day operations. Operating income, which is synon✨ymous with operating profit, allows analysts♛ and investors to drill down to see a company’s operating performance by stripping out interest and taxes.

Operating expenses include selling, general, ౠand administrative expenses (SG&am🀅p;A), 澳洲幸运5官方开奖结果体彩网:depreciation and amortization, and other operating expenses. Operating income excludes items such as investments in other firms (澳洲幸运5官方开奖结果体彩网:nonoperating income), taxes, and interest expenses.

Also, nonrecurring items such as cash paid for a lawsuit settlement are not included. Operating income is also calculated by subtracting operating expenses from 澳洲幸运5官方开奖结果体彩网:gross profit. Gross profit is total revenue minus 澳洲幸运5官方开奖结果体彩网:cost of goods sold (COGS). 

Net Income

澳洲幸运5官方开奖结果体彩网:Net income is a company’s profits or earnings. Net income is referred to as the 澳洲幸运5官方开奖结果体彩网:bottom line since it sits at the bottom of the income statement and is the income remaining after factoring in all expenses, debts, additional income streams, and 澳洲幸运5官方开奖结果体彩网:operating costs. The bottom line is also referred to as net income on the 澳洲幸运5官方开奖结果体彩网:income statement.

Net income is calculated by netting out items from operating income that include 澳洲幸运5官方开奖结果体彩网:depreciation, interest, taxes, and other expenses. Sometimes, additional income streams add to earnings like interes🃏t on investments or proceeds from the sale of assets.

In short, net income is the profit after all expenses have been deducted from revenues. Expenses can include interest on loans, 澳洲幸运5官方开🦂奖结果体彩网:general and administrative (G&A) cos💧ts, 澳洲幸运5官方开奖结果体彩网:income taxes,🧸 and operating expenses such as rent, utilities, and payroll.

Operating Income vs. Net Income: Example

Below is the 2024 income statement for Macy’s as reported in its 2024 annual report.

• Total revenue was $23.0 billion. It includes 澳洲幸运5官方开奖结果体彩网:net sales and other revenue.
• Operating income was $909 million and included all the expenses associated with operating for the year, including cost of sales; selling, general, and administrative expenses (SG&A); and impairment, restructuring, and other costs.
• Net income was $582 million, which takes into consideration settlement charges, interest expense, and taxes.

You’ll notice that Macy’s earned $909 million in operating income while earning $23.0 billion in total revenue. The company’s high cost of sales ($13.7 billion) and SG&A ($8.3 billion) took a big chunk out of revenue. After deducting settlement charges, interest expenses, and taxes, the company was able to end the year with a net income of $582 million.

Operating income and net income show income for companies; however, it’s important to analyze all areas of a company’s 澳洲幸运5官方开奖结果体彩网:financial statements to determine where a&nbs🐻p;company is making money&nbs🔯p;or losing money.

The Bottom Line

Operating income and net income both provide insight into the profౠitability of a company at different stages of the business. Operating income is a company’s income after operating expenses have been deducted from revenue, which shows how well a company is doing from its core business. Net income is a company’s operating income after other expenses, such as taxes and interest expenses, are deducted.