What is Operating Profit? See if the Core Business is Making Money

Operating profit indicates what a company earns or loses from its ordinary operations before financial items and tax. This makes the figure useful when you want to distinguish the core business from interest, investments, and financing.

How operating profit is calculated

A simple calculation is:

Operating profit = operating revenue − operating expenses

Operating revenue usually consists of sales revenue and other operating income. Operating expenses can include cost of goods sold, salaries, rent, depreciation, and other costs related to operations. Operating profit is often referred to as EBIT, but you should check the definition when comparing different data sources.

Why is operating profit important?

This figure makes it easier to assess whether the business model is profitable. A company can have a positive annual result due to gains from asset sales or financial income, even if its ordinary operations are weak. Conversely, a profitable operation can end in a deficit if interest expenses are high.

When evaluating a supplier, a consistently positive operating profit can be a good sign. However, the size must be considered in relation to turnover and industry. An operating profit of one million Norwegian kroner means something different for a company with ten million in turnover than for a company with one hundred million.

Operating margin allows for better comparison

Operating margin is usually calculated as follows:

Operating margin = operating profit / operating revenue × 100

The margin shows what proportion of revenue remains after operating expenses. It is often more suitable than a monetary amount when comparing companies of different sizes. Ideally, compare companies within the same industry, as normal margins vary widely.

Look for trends and explanations

Examine several financial years. Falling operating profit may be due to weaker demand, higher purchase prices, wage growth, or investments in growth. A sudden jump could be due to cost cuts or unusual income. The notes to the annual accounts can provide important explanations.

Operating profit on Proffi

Proffi should display operating profit, operating margin, turnover, and annual result in the same view. A historical graph makes it possible to spot trends quickly. Combine the figures with liquidity, debt, and company information before making an important decision.