Operating income

Operating income commonly referred to as EBIT, or earnings before interest and taxes is the profit a business generates from its core operations after deducting all operating costs, but before accounting for how the business is financed or how it is taxed.

The formula is:

Operating expenses include SG&A, R&D and any depreciation & amortisation not already inside COGS. Strictly, EBIT can differ from reported operating income when a company has non operating items, such as gains on asset sales or investment income, that sit above the interest and tax lines, but the two are usually treated as the same figure.

It is the cleanest measure of operational performance on the income statement because it isolates what the management team controls: pricing, production efficiency, cost discipline, and capital deployment from variables like capital structure and tax jurisdiction that reflect financial and legal decisions rather than operating ones.

The difference between EBIT and EBITDA is simply depreciation & amortisation. EBIT leaves D&A in, which makes it a more conservative and in many cases more honest measure of earnings particularly for capital intensive businesses where asset consumption is a genuine economic cost that must eventually be funded.

Below EBIT the income statement shifts from operating performance to financial structure, interest expense on debt, interest income on cash, and taxes. This is why EBIT is the natural stopping point for analysts who want to evaluate the business independently of its balance sheet.