What is the formula for calculating operating income?

The formula for calculating operating income is based on the relationship between revenue, operating expenses, and gross profit. Operating income represents the profit earned from the core business operations, excluding any income derived from non-operational activities or expenses like taxes and interests.

The correct approach to find operating income is to start with gross profit, which is derived from total revenue minus the cost of goods sold (COGS). From gross profit, you subtract operating expenses, which include wages, rent, and other costs related to running the business (excluding COGS). The resulting figure is operating income, which reflects the profitability of the company's primary activities.

Therefore, the formula correctly represented is gross profit minus operating expenses, indicating that operating income captures the performance of ongoing core operations effectively. This measure is crucial for understanding how well a company is performing in its main business activities.