Income from operations definition
/What is Income from Operations?
Income from operations is the profit generated by the operations of a business. This classification of income excludes gains and losses from the sale of assets, interest income, interest expense, and any other income not related to the core operations of the firm. Investors and creditors prefer to look at this number in order to gauge the ability of an organization to earn money on an ongoing basis.
Advantages of Income from Operations
One should always investigate income from operations, since it reveals whether the underlying business is capable of generating a profit, irrespective of any financial engineering that may be going on. If the core business is not generating any income from operations, then it has little prospect for survival.
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The Interpretation of Financial Statements
Example of Income from Operations
A company reports $1,000,000 of sales, $650,000 cost of goods sold, and $325,000 of operating expenses. Its income from operations is $25,000. To determine whether it is a viable business, it is still necessary to factor in the impact of the non-operating items mentioned earlier.