metrics explained

Operating income vs Net income: What's the Difference?

Operating income and net income are two key financial metrics that businesses useto gauge their financial performance. Both measures provide insights into a company's overall profitability, but they each have their own distinct calculation. Here's a closer look at the difference between operating income and net income.

What is Operating Income?

Operating income is a company's total revenue minus its operating expenses. Operating expenses include things like cost of goods sold, selling, general, and administrative expenses. Essentially, operating income measures a company's profitability from its core business operations.

To calculate operating income, you take a company's total revenue and subtract its total operating expenses. Operating income is also sometimes referred to as "operating profit" or "operating earnings."

What is Net Income?

Net income is a company's total revenue minus its total expenses. This includes both operating expenses and non-operating expenses. Non-operating expenses include things like interest expense, taxes, and one-time gains or losses.

To calculate net income, you take a company's total revenue and subtract its total expenses. Net income is also sometimes referred to as "net profit" or "net earnings."

The Difference Between Operating Income and Net Income

The main difference between operating income and net income is that operating income only includes a company's core business expenses, while net income includes both core business expenses and non-core business expenses.

Another way to think about the difference is that operating income is a measure of a company's profitability from its core operations, while net income is a measure of a company's overall profitability.

Why is Operating Income Important?

Operating income is important because it provides insights into a company's profitability from its core business operations. This is important because it allows investors to see how much profit a company is generating from its core business, without the impact of things like interest expense, taxes, and one-time gains or losses.

Operating income is also important because it's one of the key inputs in the calculation of a company's operating margin. Operating margin is a measure of a company's profitability that takes into account its operating expenses. The higher a company's operating margin, the more profitable it is.

Why is Net Income Important?

Net income is important because it's a measure of a company's overall profitability. This is important because it allows investors to see how much profit a company is generating from its core business operations, as well as from its non-core business operations.

Net income is also important because it's one of the key inputs in the calculation of a company's net margin. Net margin is a measure of a company's profitability that takes into account its total expenses. The higher a company's net margin, the more profitable it is.

Operating Income vs. Net Income: Which is More Important?

Both operating income and net income are important measures of a company's profitability. However, operating income is generally considered to be a more important measure because it provides insights into a company's profitability from its core business operations. This is important because it allows investors to see how much profit a company is generating from its core business, without the impact of things like interest expense, taxes, and one-time gains or losses.

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