Income From Operations (IFO)
Overview
Income from operations (IFO), also called operating income or EBIT (earnings before interest and taxes), measures the profit a business generates from its core, day-to-day activities. It isolates performance of the primary business by excluding income and expenses that are not part of regular operations.
Definition
IFO = Revenue from operations − Cost of goods sold (COGS) − Operating expenses
It represents profit from normal business activity and is used to assess a company's operational efficiency and potential recurring profitability.
What’s included
- Revenue from the core business (sales or services)
- Direct costs tied to producing goods or delivering services (COGS)
- Operating expenses such as wages, rent, utilities, marketing, and depreciation related to operations
What’s excluded
- Interest income or expense
- Income tax expense
- Gains or losses from investments or asset sales
- One-time/nonrecurring items and other nonoperating income
Example calculations
- Simple example: A car maker spends $100,000 producing cars and sells them for $110,000. IFO = $110,000 − $100,000 = $10,000.
- Small business example: A fruit seller subtracts tree care, harvesting, selling labor, and other operating costs from apple sales revenue to arrive at the operating income for the apple business.
Why it matters
- Shows profitability from core operations without distortion from financing, taxes, or one-off transactions.
- Useful for comparing operating performance across companies and periods.
- Helps investors and managers gauge how well a business can generate profit from its primary activities and identify operational strengths or weaknesses.
Key takeaways
- IFO equals operating income/EBIT and focuses solely on operating activity.
- It excludes financing costs, taxes, and nonoperating gains or losses.
- Consistent operating income suggests sustainable core-business profitability; deviations often point to nonoperating or one-time factors.