Operating income, also known as operating profit, is the amount of money a company generates from its core business operations after deducting all operating expenses. It represents the earnings before interest and taxes (EBIT) and is calculated by subtracting operating expenses from gross profit.
Operating expenses include selling, general, and administrative expenses (SG&A), such as salaries, rent, utilities, and marketing expenses. It also includes depreciation and amortization expenses, which represent the cost of using long-term assets over time.
Operating income is an important financial metric as it provides insight into a company's profitability from its core business operations. It is used to assess a company's operational efficiency and its ability to generate profit from its main activities. A high operating income margin indicates that a company is able to control its operating expenses effectively and generate a significant profit from its core business activities. A low operating income margin, on the other hand, may indicate that a company is facing challenges in controlling its costs or is generating lower revenue from its core business operations.
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