Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Income from Operations

What it is:

Income from operations is income that is generated by the normal operations of a business.

How it works (Example):

Income from operations is also referred to as operating income or operating earnings.

According to the Accounting Principles Board (APB) 30, income from operations does not include any items such as extraordinary items, changes in accounting principle, results of discontinued operations, or gains or losses from disposals of segments of operations. For example, in Company XYZ's income statement :  


For the Year Ended Dec 31, 2xxx

Sales Revenue $1,000,000
Cost of Goods Sold $550,000
Operating Expenses $170,000
Administrative Expenses $100,000
Income from Operations Before Income Taxes $180,000
Income Tax Expense $10,000
Income From Continuing Operations $170,000
Income From Operations of Discontinued Segment (Net of Taxes) $20,000
Extraordinary Gain $10,000
Net Income $200,000

 

In the above example, operating income is stated in the item called ‘income from continuing operations’ which equals $170,000.   The example also shows how net income ($200,000) is at times greater than operating income ($170,000) due to other items, in this case income from discontinued operations ($20,000) and extraordinary gain ($10,000).

 

Why it Matters:

For analysts and creditors analyzing the income statement of a particular company it is essential to recognize the differences between income from continuing operations and other non-recurring items. Income from operations is generally considered the best barometer of future results. Other items, which are non-recurring, are less essential for projecting future income.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...