A category of income that an entity generates after deducting operating expenses from its operating revenues. Operating expenses represent the costs of running an entity’s usual operations. It reflects an entity’s operating performance by removing the effect of interest and taxes.

Operating income is profit after deducting operating expenses such as wages, depreciation, and cost of goods sold (COGS). In other words, it reflects the amount of revenue (gross profit) left after subtracting the operational direct and indirect costs from sales revenue.

The formula of operating income is as follows:

Operating income= gross profit – operating expenses

Operating income is synonymous with operating profit.