What is operating profit?
Definition of operating profit
Operating profit is used to determine how profitable a business is on a day-to-day basis. It is calculated by taking the income that a business receives from sales and subtracting the cost of sales and other costs involved in the running of the business (i.e. administrative expenses).
A healthy operating profit figure is a good indicator that a business is being run effectively. Operating profit is also a starting point for net profit calculations.
Operating profit formula
A simple formula for calculating operating profit (OP) is:
Sales revenue - cost of sales - administrative expenses = OP
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.