What is Income From Operations ?
309 reads · Last updated: December 5, 2024
Income from operations (IFO) is also known as operating income or EBIT. Income from operations is the profit realized from a business' own operations. Income from operations is generated from running the primary business and excludes income from other sources. For example, this would exclude income generated from selling the property of a manufacturing company.
Definition
Operating Income (IFO), also known as Earnings Before Interest and Taxes (EBIT), refers to the profit a company makes from its core business operations. This income excludes revenue from other sources, such as asset sales.
Origin
The concept of Operating Income originated in accounting to help businesses and investors better understand the profitability of a company's core operations. As financial reporting standards became more standardized, this concept was widely adopted.
Categories and Features
Operating Income is primarily divided into two categories: operating revenue and non-operating revenue. Operating revenue is derived from a company's core business activities, while non-operating revenue comes from other activities, such as investment income. The key feature of Operating Income is its ability to reflect a company's core profitability, aiding investors in assessing operational efficiency.
Case Studies
Case Study 1: Apple Inc. lists its main product sales revenue as Operating Income in its financial reports, helping investors understand the profitability of its core business. Case Study 2: Walmart's revenue from its retail operations is considered Operating Income, reflecting its competitiveness in the retail market.
Common Issues
Common issues include distinguishing Operating Income from other revenue sources. Investors often mistakenly consider one-time income as Operating Income, which can lead to misjudging a company's profitability.
