How to Define Operating Income

Video Transcript

"How do we define operating income? When we measure the results of our business operations, we look at our sales, we look at our costs, we look at our operating expenses and we determine the operating income and we use it as a measure to determine our return on capital. In the case of a sock salesman, we're interested in the dollars of revenue created by the sale of socks, the cost of purchasing those socks for resale, and the expenses that we incur in further in to that activity such as rent, payroll, interest expense on the money we borrow, depreciation, all those other things that go in to reducing the revenue of that enterprise. The net of all numbers is the operating income of the enterprise."