Operating Income Example
Operating Income Example

See Also:
Operating Income (EBIT)

Operating Income Example

For example, Marilyn is the CEO of a company which creates educational children’s toys. Marilyn loves her work and truly knows her business. With the support of her family and local bank Marilyn has taken her idea from startup to success in only 3 years. Pleased with her achievement, she wants to maintain what she has created.
Marilyn has come upon the bank period for the loan she has taken to start her business. She is almost finished with paying her liability and wants to make sure she exits the deal on good terms. Marilyn needs to make sure all of the financial ratios in her loan agreement are satisfactory in the view of her bank. This mainly revolves around her company operating margin.
Marilyn contacts her accountant. She needs to access her financials in order to find her EBIT to assure it is complaint with the loan covenant. Her company results are listed below:
$1,000,000 in revenues; $250,000 in cost of goods sold; and $100,000 in operating expenses.
EBIT = $1,000,000 – ($250,000 + $100,000) = $650,000
Marilyn then reviews her paperwork with the bank. She finds that she is complaint with their requirements and will soon be able to complete both interest and principal payments. She is extremely relieved because she is lifting a huge weight off of her shoulders. Additionally, she is in good standing with the bank and could use them as a source for capital to grow her business further. She is excited about what the future holds for her experience as an entrepreneur.

Operating Income Calculation

Operating income calculations simply involve addition and subtraction. When performed properly they serve great value with a relatively little amount of effort.
Example: A company has $1,000,000 in revenues; $250,000 in cost of goods sold; and $100,000 in operating expenses.
EBIT = $1,000,000 – ($250,000 + $100,000) = $650,000
For more tips on how to improve cash flow, click here to access our 25 Ways to Improve Cash Flow whitepaper.

Operating Income
[box]Strategic CFO Lab Member Extra
Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]

Operating Income

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

Financial Ratios

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

Read More »

CPA’s are Specialized

The Difference in CPAs Looking back at my career I don’t know how many times I have introduced myself to someone and they ask, “Are you a CPA?” and I say yes. Then they tell me “you must be very busy with tax season” and I look at them with a bit of awe and

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

February 27 - March 2, 2023

Skip to content