This operating income template shows you how to calculate operating income using line items from the income statement.
This is what the operating income template looks like:
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Operating income also referred to as Earnings Before Interest & Taxes (EBIT), is the amount of revenue left after deducting the operational direct and indirect costs from sales revenue. This can also be computed using gross income less depreciation, amortization and operating expenses not directly attributable to the production of goods. Interest expense, interest income, and other non-operational revenue sources are not considered in computing for operating income.
There are three formulas to calculate income from operations:
1. Operating income = Total Revenue – Direct Costs – Indirect Costs
2. Operating income = Gross Profit – Operating expenses – Depreciation – Amortization
3. Operating income = Net Earnings + Interest Expense + Taxes
Another way to calculate income from operations is to start at the bottom of the income statement at Net Earnings and then add back interest expense and taxes. This is a common method of an analyst to calculate EBIT, which can then be used for valuation in the EV/EBIT ratio.
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