What is Operating Profit?

Operating profit (or operating income, EBIT) is what a business earns from its core operations after deducting both the direct cost of sales and all operating expenses, but before interest and tax.

Operating profit measures how well management runs the day-to-day business. It strips out financing decisions (interest) and tax regimes, making it comparable across companies and countries.

The operating margin (EBIT ÷ revenue) is the single most quoted profitability ratio for established businesses. Tracking the trend reveals whether the business is gaining or losing operational leverage as it grows.

Formula

Operating Profit = Revenue − COGS − Operating Expenses

Example

A consultancy with CHF 2m revenue, CHF 800k of direct project costs and CHF 700k of rent, salaries and software earns CHF 500k operating profit — a 25% operating margin.

Related terms

Gross Profit

Gross profit is revenue minus the direct cost of producing the goods or services sold, showing how much money a business keeps from each sale before operating expenses.

Profit Margin

Profit margin is a profitability ratio that expresses a company's profit as a percentage of its revenue, showing how many cents of profit are produced by each franc, euro or dollar of sales.

Income Statement

The income statement (or profit and loss statement, P&L) reports a company's revenues, expenses and profits over a specific period, showing whether the business made money and how.

Operating Expenses (OpEx)

Operating expenses are the ongoing costs a business incurs to run its day-to-day operations — including salaries, rent, utilities, marketing and software — expensed in the period they occur.

Frequently asked questions

Is operating profit the same as EBIT?+

Yes, in most contexts. EBIT explicitly excludes interest and tax; operating profit excludes those plus any non-operating items.

How does it differ from EBITDA?+

EBITDA also adds back depreciation and amortisation; operating profit deducts them.

Why exclude interest and tax?+

To compare operational performance independently of capital structure and tax jurisdiction.