I was looking WWE’s business operations, then I saw there was a vast discrepancy between operating profit vs net income.
I’ve heard the same thing applies for real estate and stocks.
In: Economics
Operating profit is the money earned from actual operations – the revenue taken in from whatever the business does minus the expenses associated with running that business. A business can get revenue/income from other things besides its actual operations and it can have expenses due to things other than its operations. As an example, let’s say WWE has a large amount of cash in the bank and that cash earns interest of $500K. WWE isn’t in the business of investing cash to earn interest – it’s in the business of professional wrestling and associated marketing and promotion. So that $500K, which is definitely income to WWE, isn’t operating income, it’s investment income. Similarly, WWE might have an expense unrelated to its operations (like settling an SEC lawsuit about manipulating stock pricing) – it’s not an operating expense since it has nothing to do with actual operations, but it is still an expense. Investment income and depreciation of certain assets are frequently non-operating revenue and expense, but it depends on lots of particulars. As a rule, operating profit is useful to inform investors of just how good or bad the company is at doing what it does everyday as its main business.
Operating profits and net income can be the same but not necessarily.
As a general rule net income takes into account tax and financial costs (or profit) while operating profit doesn’t.
So every country and state is different. They each have their own tax codes, rules and stuff. Operating profit doesn’t care about that. It’s how much you made off your product or service. Net is more real world in the places you file and service.
Operating profit = how much money did you make minus the total cost of actually making the thing you are selling.
Net Income = all money made – all expenses.
Basically net income will include different revenue streams as well as different expenses not directly related to operations. Operating income is only income from operations. So things like large non-recurring expenses, taxes, other investment vehicles are included in net income and not in operating.
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I borrow a hundred dollars from a payday lender with an effective interest rate of ten percent a week.
I buy lemons, sugar, cups, and build a kiosk, and pay a city licensing fee to open a lemonade stand with that $100.
Over the next seven days I sell $200 of lemonade, giving me an operating profit of $100.
I then repay $110 to the lender, leaving me with net income of $90.
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