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Operating profit, also known as operating income, is the profit a company generates from its core business operations after subtracting operating expenses such as wages, rent, and cost of goods sold (COGS) but before deducting interest and taxes. It is a key measure of a company’s profitability and operational efficiency, reflecting how well a company controls its costs while generating revenue.
A company reports $1 million in sales and incurs $700,000 in operating expenses, resulting in an operating profit of $300,000 before interest and taxes.
• Represents profit from core business activities after operating expenses but before interest and taxes.
• Measures operational efficiency and profitability.
• Used to evaluate a company’s performance before considering financial and tax obligations.
It reflects a company’s ability to generate profit from core operations, excluding external factors like interest and taxes.
A company can increase operating profit by boosting revenue, reducing operating costs, or improving operational efficiency.
A decline in operating profit may signal inefficiencies in cost management or declining sales, which can affect overall profitability.
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