Financial statements · updated October 21, 2026
What is operating income (EBIT) and how is it calculated
Operating income, also called EBIT, is the profit a company makes from its core business, before paying interest and tax. It shows how good the business itself is, no matter how much debt the company has or which country it pays taxes in.
Operating income (EBIT) formula
- Cost of goods sold
- The direct cost of the products: materials, manufacturing, merchandise.
- Operating expenses
- Office wages, rent, marketing, research and depreciation.
Worked example
A company sells $10 billion. The products cost $6 billion and operating expenses were $2 billion.
The operating margin is 20%: out of every $100 of sales, $20 is left from the business.
How to read operating income (EBIT)
Operating income is the base for operating margin, interest coverage and ROIC. Add back depreciation and you get EBITDA.
When operating income (EBIT) can fool you
Relabelled costs: some companies call regular costs "unusual" and leave them out of "adjusted" operating income. Income from outside the business: gains from selling assets should not be counted here, but sometimes they are.
Related terms
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Questions about operating income (EBIT)
What is the difference between EBIT and EBITDA?
EBITDA adds depreciation and amortisation back to EBIT. EBIT is more cautious, because it accepts that equipment and buildings wear out and have to be replaced.
Why do analysts look at operating income?
Because it lets you compare two companies with different debt and tax. It shows the business, not the way it is financed.
These explanations are for information only. They are not a recommendation to buy or sell.
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