Is operating income the same as net income

In casual conversation, revenue and income can mean the same thing. On your financial statements, net revenue and operating income are separate, distinct terms. Net revenue or net sales is the money you made from selling goods or services for the month, quarter or year. Operating income is the dollar amount left after you subtract expenses from net revenue.

Índice Show

Crunching the Numbers
How to Find Operating Income
What the Terms Signify
Operating Profit vs. Net Profit Differences
What is Operating Profit?
What is Net Profit?
Operating Profit vs. Net Profit Infographics
Operating Profit vs. Net Profit – Key Differences
Operating Profit vs. Net Profit Head to Head Difference
Similarities between Operating Profit and Net Profit
Final Thought
Recommended Articles
What is operating income also known as?
How do you convert net income to operating income?
How do you calculate operating income?

Tip

Net revenue and operating income are two distinct items, and the difference between them shows how much expenses take out of your revenue stream.

Crunching the Numbers

Your company's income statement is the place you report both net revenue and operating income. Net revenue is up at the top, alone or under gross sales. It represents the income that the business generated during the reporting period covered by the statement.

To calculate net revenue, you add up sales income – not just what customers paid but also credit sales – and adjust it for discounts, allowances and returns. For example, if you run a store and allow customers to return items, you reduce sales revenue to reflect the possibility some sales aren't final.

How to Find Operating Income

Operating income sits a few lines lower on the income statement. To get there, you subtract many of your business expenses from net revenue. You subtract the cost of goods sold, such as the price to you of the inventory you sold during the period. Then, you subtract operating expenses: marketing, advertising, employee salaries, rent, insurance and other costs of doing business. You don't include taxes, interest payments and other nonoperating expenses. Those are handled elsewhere on the statement.

After subtracting the cost of goods sold and operating expenses to net revenue, you have your operating income.

What the Terms Signify

Operating income is one of the most important lines on the income statement. It shows how much your regular business activities earned during the reporting period. It's separated on the statement from other income, such as investment earnings. That way anyone reading the income statement can see how much income your business activities earn and whether your business is profitable. That information is important not only to you but also to lenders and investors. Lumping money from investments in with operating income would muddy the image.

Net revenue is important mostly in relation to other items on the statement. For example, when net sales figures are significantly under gross sales, the product may be defective, causing a lot of returns, or the company's returns policy is too generous. The difference between net revenue and operating income shows how much expenses take out of your revenue stream. If net sales are high but operating income is low, it may be time to trim the budget.

Operating Profit vs. Net Profit Differences

The main purpose of running any business is profit. Profit is in hand after paying all bills and expenses. Profits are of three types: net profit, operating profit, and gross profitGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services.read more, and these bifurcations are done based on the source from where the business has generated profit.

This article looks at the key differences between Operating Profit and Net Profit.

What is Operating Profit?

Operating Profit is derived from gross profit. It is the income left after paying all expenses and costs paid by the company in running the business. We can say the remaining amount after accounting for all expenses and cost, which includes all fixed cost expenses like rent, maintenance cost, insurance cost, etc. and variable cost expenses courier, electricity bills, depreciation of the assetDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more, etc.

Operating profit does not include profit generated by investment or interest generated on savings. Operating profit helps one to the known profit generated by company operations. It deals with the core of the company.

Operating profit is gross profit minus operating expenses and can be written as:-

Operating Profit = Gross Profit – Operating Expenses

Operating profit can also be calculated as net profit minus non-operating expense minus non-operating income, and it can be expressed as:-

Operating Profit = Net Profit – Non-operating Income – Non-operating Expenses

You are free to use this image on your website, templates, etc., Please provide us with an attribution linkArticle Link to be Hyperlinked
For eg:
Source: Operating Profit vs Net Profit (wallstreetmojo.com)

What is Net Profit?

Net Profit is the total remaining income left after accounting all cash flowsCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more. It can be inflow or outflow, which represents positive or negative. It is also the number of earnings left after reducing all expenses done by the company, interest paid by the company to the lender, and taxes. Net Profit is the profit generated from all sources after deducting all expenses.

It is used as an indicator as it indicates the ability of the company to generate from its sales. It tells about the profitability of the company, and it shows the actual profit generated by the company in a particular accounting period. It is a basic difference between total revenue and the total cost incurredIncurred Cost refers to an expense that a Company needs to pay in exchange for the usage of a service, product, or asset. This might include direct, indirect, production, operating, & distribution charges incurred for business operations. read more by the company in running the business.

The net profit is total revenue minus total cost, which can be expressed as:-

Net Profit = Total Revenue – Total Cost.

Net profit can be written as gross profit minus total expense for operations, interests, and tax, and it can be expressed as:-

Net Profit = Total Revenue – Total Expense for Operations, Interest, and tax.

Net profit in terms of operating profit is operating profit minus interest minus tax, and it can be written as:-

Net Profit = Operating Profit – Interest – Tax.

Operating Profit vs. Net Profit Infographics

Here we provide you with the top 4 differences between Operating Profit vs. Net Profit.

Operating Profit vs. Net Profit – Key Differences

The key differences between Operating Profit vs. Net Profit are as follows –

Operating profit is the remaining income of the company after paying off operating expensesOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more. In contrast, Net profit is the remaining income of the company after paying all costs incurred.
Operating profit helps to know how the company manages its resources and expenses. In contrast, Net profit helps to know the actual profit made by the company in an accounting period.
Operating profit help in eliminating unnecessary operating expenses, whereas Net profit help To know the profit and performance of the company in an accounting periodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more;
Operating profit is the profit generated from operational activities, whereas Net profit is the profit generated from all sources after deducting all expenses.
Operating profit and its calculation parameters concentrate on the core operational activity of the company. In contrast, net profit and its calculation parameters concentrate on overall activity and other sources also for calculation profitability of the company.
Operating profit is about the profitability of a company’s operations, whereas net profit is the company’s abilities to generate for owners, stake owners, and shareholders.

Operating Profit vs. Net Profit Head to Head Difference

Let’s now look at the head to head difference between Operating Profit vs. Net Profit.

Basis – Operating Profit vs. Net Profit	Operating Profit	Net Profit
Meaning	Operating profit is the remaining income of the company after paying off operating expenses.	Net profit is the remaining income of the company after paying all costs incurred by the company.
Uses	To know the expense management of the company and how the company is managing its resources.	To know the actual profit made by the company in an accounting period.
Advantage	Help in eliminating unnecessary operating expenses.	To know the profit and performance of the company in an accounting periodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read moreAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read moreAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more.
Source of Profit	Operating profit is the profit generated from operational activities.	Net Profit is the profit generated from all sources after deducting all expenses.

Similarities between Operating Profit and Net Profit

There are some similarities between operating profit and net profit, and they are as follows:-

Operating profit and net profit are part of a company’s income statement.
Both show the profitability of the company and provide profit generated by the company.
Both are helpful for one reading financial statementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more and provide a clear picture of the company’s health.
Both are calculated after the deduction of various expenses of the company.

Final Thought

Profits are of three types net profits, operating profit and gross profit, and these bifurcations are done on the bases of the source of from which the business has generated profit, and when profit is generated from operational activities, it is operating profit, and when profit is for the generation of overall business, it is net profit. There are various levels of profit, among which the fundamental level is gross profit, the middle level of profit is operating profit and bottom, and the final level of profit is net profit which is the actual profit of a company. Operating profit and net profit are part of a company’s income statement.

Operating profit is the remaining income of the company after paying off operating expenses, and Net profit is the remaining income of the company after paying all costs incurred by the company, including all expenses, tax, and interest. Both the operating profit and net profit help one to know the company’s profitability.

What is operating income also known as?

Operating income—also called income from operations—takes a company's gross income, which is equivalent to total revenue minus COGS, and subtracts all operating expenses. A business's operating expenses are costs incurred from normal operating activities and include items such as office supplies and utilities.

How do you convert net income to operating income?

To calculate net income, subtract all non-operating expenses from operating income. This means you must first calculate operating income before determining net income. Non-operating expenses might include items like: Restructuring.