Operating income

Operating income is the profit a business earns from core operations after deducting operating expenses from gross profit, but before interest and income tax. It is also called EBIT.

Also known asEBIT · operating profit

ByHoang TruongUpdated June 30, 2026

See it move

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The infographic is a waterfall chart that opens at gross profit of €800,000 and subtracts three operating-cost bars: staff wages (€300,000), store rent (€80,000), and depreciation (€20,000). The final bar shows operating income (EBIT) of €400,000, which excludes interest and tax so that the profitability of core operations can be assessed independently of how the business is financed.

Where it fits

SubjectFinancial AccountingCoreTopicRevenue, Expenses & ProfitCore

The formula

LaTeX

EBIT = GP - OpEx

Variables

$E B I T$: Operating income, also called earnings before interest and tax (€)
$GP$: Gross profit (revenue minus cost of goods sold) (€)
$O pE x$: Operating expenses (wages, rent, depreciation and similar items) (€)

Interest and tax are deducted after this line, so EBIT isolates the performance of core operations.

LaTeX

EBIT = Rev - COGS - OpEx

Variables

$E B I T$: Operating income (earnings before interest and tax) (€)
$R e v$: Total revenue (€)
$C O GS$: Cost of goods sold (€)
$O pE x$: Operating expenses (€)

Equivalent expanded form working from top-line revenue rather than gross profit.

Check yourself

PracticeCORE

A retailer reports for the year: revenue €900,000; cost of goods sold €540,000; selling and administrative expenses €120,000; interest expense €25,000; income tax €46,500. What is operating income?

Select an answer to check your understanding.

If you trained under a national GAAP

DE · HGBWhere national-GAAP intuition diverges from the international standard

HGB (German)

Section 275 of the HGB prescribes two permissible income statement formats — cost-of-sales and total-cost — both of which include a legally mandated operating result (Betriebsergebnis) subtotal before financial income and expense. Every German entity must present this line, giving a consistent and legally defined boundary between operating and non-operating performance across all HGB reporters.

IFRS

IAS 1 does not prescribe a specific income statement layout or require an operating profit subtotal; entities select their own captions and groupings provided they are relevant and not misleading. Many IFRS reporters show an operating line voluntarily but define it differently, limiting comparability. IFRS 18, effective for periods beginning on or after 1 January 2027, will introduce mandatory operating, investing, and financing subtotals for the first time.