Enter the total revenue ($), the operating costs ($), and the cost of goods sold ($) into the calculator to determine the Operating Profit.
Operating Profit Formula
The following formula is used to calculate the Operating Profit.
OP = R - OC - COGS
- Where OP is the Operating Profit ($)
- R is the total revenue ($)
- OC is the operating costs ($)
- COGS is the cost of goods sold ($)
To calculate the operating profit, subtract the cost of goods sold and the operating costs from the total revenue.
How to Calculate Operating Profit?
The following example problems outline how to calculate Operating Profit.
Example Problem #1
- First, determine the total revenue ($). In this example, the total revenue ($) is given as 4000 .
- Next, determine the operating costs ($). For this problem, the operating costs ($) is given as 2000 .
- Next, determine the cost of goods sold ($). In this case, the cost of goods sold ($) is found to be 1000.
- Finally, calculate the Operating Profit using the formula above:
OP = R – OC – COGS
Inserting the values from above yields:
OP = 4000 – 2000 – 1000 = 1000.00 ($)
FAQ
What is the difference between Operating Profit and Net Profit?
Operating Profit is calculated by subtracting the operating costs and the cost of goods sold from the total revenue. It focuses on the profitability of the company’s core business operations. Net Profit, on the other hand, is calculated by subtracting all expenses, including operating costs, taxes, interest, and other non-operating expenses, from the total revenue. It provides a more comprehensive view of a company’s overall profitability.
How can a company improve its Operating Profit?
A company can improve its Operating Profit by increasing its total revenue through sales growth or pricing strategies, and/or by reducing its operating costs and the cost of goods sold. This can be achieved through efficiency improvements, cost-cutting measures, or renegotiating supplier contracts.
Why is Operating Profit an important metric for businesses?
Operating Profit is an important metric because it provides insight into the efficiency and profitability of a company’s core business operations, excluding the effects of financing and other non-operational activities. It helps stakeholders understand how well the company is generating profit from its primary business activities, which is crucial for long-term sustainability and growth.
