Operating Profit

Operating profit is what a company earns from its core business: revenue minus cost of sales and operating expenses. Interest, tax and one-off items such as selling a building have not yet entered the calculation.

That makes it a better read on real capability than net profit. Net profit can look strong for a year because a property was sold, while operating profit contains only money made by selling goods and services.

Be wary of a company with an operating loss but positive net profit. It may be losing money on the core business and closing the gap by selling assets. The reverse — solid operating profit but weak net profit — usually points to heavy interest costs.

Operating profit as a share of revenue is the operating margin. A margin above the industry average suggests pricing power or disciplined cost control. What matters is whether it holds up across several years. If operating profit rises while revenue stays flat, the gain may have come from cutting costs. Cost cutting has a floor, so check whether revenue is growing alongside it.