Another important distinction is that operating income is a GAAP-approved accounting metric, while EBIT is not. But EBIT can differ from operating income if a company has non-operating revenue from investments or the sale of a subsidiary, or if it incurs non-operating expenses such as a write-off. If a company doesn't have revenue or expenses from those sources, EBIT will be the same as operating income. Unlike operating income, EBIT can include revenue and expenses from non-operational sources. As its name suggests, EBIT is net income excluding interest payments and taxes. The terms “operating income” and “earnings before interest and taxes” (EBIT) are often used interchangeably, but there's a key difference between the two. Net income is also known as “the bottom line,” because it's the last line on a company's income statement. It includes non-operating income from investments and the sale of assets, as well as non-operating costs such as taxes, interest and one-time charges. While operating income is the profit remaining after deducting COGS and operating expenses from net sales revenue, net income takes into account all revenue and expenses. Operating income and net income are both important measures of a company's profitability. Operating income excludes nonoperating, recurring expenses like taxes and interest, as well as extraordinary charges such as litigation costs. Indirect expenses are costs that are not directly incurred during production, including salaries of administrative staff, office rents, sales commissions and marketing expenses. Direct expenses, also known as cost of goods sold (COGS) or cost of sales, include raw materials and labor costs associated with making the company's products or services.

These expenses are typically divided into two main categories: direct and indirect. Operating income is the profit that remains after subtracting the expenses of day-to-day business operations from the company's net sales revenue. By excluding the effect of taxes, interest and one-time events such as acquisitions and write-offs, operating income helps managers, investors and lenders focus on the fundamentals at the heart of the company's business. It shows how efficiently the company can generate cash from its business operations. Operating income measures the profitability of a company's core business operations after deducting all operating expenses. If you want insights into how a company's business is performing, operating income is a key metric to understand. East, Nordics and Other Regions (opens in new tab)

Formula operating income