Operating Profit

Operating Profit formula

\[ \text{Revenue} - \text{Cost of sales} - \text{Operating expenses} \]

Terms

• Cost of sales, period total: Direct cost of the goods and services sold in the period.
• Operating expenses, period total: Costs of running the business that are not part of the cost of sales: personnel, premises, marketing, administration, depreciation.
• Revenue, period total: Net sales of goods and services for the period, after discounts and allowances.

Result

Operating Profit is an amount in currency. Higher is better.

Target

There is no general target; compare with the company’s own history and with peers in the same industry.

Operating Profit pitfalls

• Depreciation is part of operating expenses here. A business with heavy fixed assets can show a thin operating profit while generating plenty of cash.

Operating Profit in Business Central

Cost of sales (period total)

• Category Cost of Goods Sold (26) and every category below it
• Plus 3 accounts assigned directly: 50310 Project Costs, 50320 Project Cost Applied, 50410 Purchase Variance, Retail

10 posting accounts in total.

The full account list is on the Cost of sales page.

Operating expenses (period total)

• Category Expense (31) and every category below it
• Plus 3 accounts assigned directly: 60410 Utilities Expense - Power Plant, 66200 Depreciation, Equipment, 67400 Miscellaneous
• Except category Interest Expense, account 91000 Currency Losses

102 posting accounts in total.

The full account list is on the Operating expenses page.

Revenue (period total)

• Category Income, Services (19) and every category below it
• Category Income, Product Sales (20) and every category below it
• Category Income, Jobs (21) and every category below it
• Category Sales Discounts (22) and every category below it
• Category Sales Returns & Allowances (23) and every category below it
• Category Job Sales Contra (25) and every category below it
• Plus 8 accounts assigned directly: 40410 Job Sales, 40420 Job Sales Applied, 40430 Sales of Service Contracts, 40440 Sales of Service Work, 40910 Discounts and Allowances, 40920 Invoice Rounding, 40930 Payment Tolerance, 40940 Sales Returns

13 posting accounts in total.

The full account list is on the Revenue page.

Related metrics

• EBIT: Earnings before interest and taxes: operating profit plus other income and expenses such as investment income and currency results. It is the profit available to pay lenders, the state and owners.
• Return on Sales: The share of every unit of revenue that remains as operating profit, also called operating margin.

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