Operating Profit (EBIT)

Operating profit sits between gross profit and net income on the P&L. You start with gross profit, subtract operating expenses (rent, admin salaries, marketing, insurance, depreciation), and what's left is operating profit — also called EBIT, Earnings Before Interest and Taxes.

Why operating profit matters

Operating profit isolates how well the business performs at its core function, before two factors that don't relate to operations: how it's financed (interest expense) and how it's taxed (income taxes). This makes operating profit a useful comparison metric across businesses with different capital structures — one company that borrowed heavily to buy equipment will show lower net income than a debt-free competitor doing identical business, even if their operating efficiency is the same. Operating profit strips that out.

Operating profit vs. net income

The gap between operating profit and net income consists of interest expense and taxes. For businesses with no debt and straightforward tax situations, the gap is small. For heavily leveraged businesses or those with complex tax structures, the gap can be significant. Your lender and any potential buyer will look at operating profit to understand the underlying business performance independent of those factors.

Operating profit margin

Operating profit expressed as a percentage of revenue — operating profit margin — is a standard metric lenders and investors use to evaluate business efficiency. A 15% operating margin means 15 cents of every revenue dollar remains after all operating costs, before financing and taxes.