Operating income (OI): Definition, challenges, and explanations

Operating income (REX) is a term used in management and finance to refer to the income generated by a company solely from its current activities, without taking into account financial items, exceptional items, or taxes.

This is an indicator found in the income statement details that reflects the actual profitability of the company's commercial and industrial operations.

REX is calculated by subtracting operating expenses (costs related to production, purchases, salaries, overheads, etc.) from operating income (turnover and other income related to the main activity).

Using operating income allows you to accurately assess a company's operational performance, independently of financial or exceptional influences. This helps you understand whether the core business is profitable enough to cover its expenses.

REX is essential for internal decision-makers (executives, managers) who want to analyze the economic health of their daily operations in isolation.

In addition, this indicator is valuable to investors and financial partners because it provides a clear view of the profitability of current operations before taking into account debt, taxes, or extraordinary gains.

Operating income is calculated based on accounting data from the income statement. It is the difference between operating revenues and operating expenses.

Operating income mainly includes revenue, operating subsidies, and other income related to the core business.

Operating expenses include purchase costs, production costs, overheads, salaries, social security contributions, and other expenses directly related to day-to-day management.

This calculation is made using the following formula: Operating Income = Operating Revenue - Operating Expenses.

Operating income has several significant advantages. It provides a clear and accurate picture of the profitability of the core business, enabling better strategic decision-making.

By isolating current operations, it facilitates performance analysis by excluding the effects of financial or exceptional events, making the assessment more reliable.

However, this result also has limitations: it does not take into account financial expenses or income, nor tax impacts, which may give an incomplete picture of the overall health of the company.

A classic example is that of an industrial company that wants to measure the profitability of its production without taking bank interest or taxes into account.

An SME using REX will be able to identify whether its core business is profitable before considering external financing or exceptional results. This makes it possible to adjust production costs or optimize resource management.

In the context of business valuation, REX is often used to value a company based on its operational performance, particularly in the context of divestitures or fundraising.

• Linguee: Language resource for translating and understanding the term "operating income."
• Compta-Facile: Detailed definition and calculation method for operating income.
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• Propulse by CA: Accounting explanations on operating income.
• Qonto: Financial glossary explaining the concept of operating income.