What is Operating Profit

The true value of a business as a going concern is measured by operating profit. That is the profit arising from its trading operations and nothing else.

Why Operating Profit is Important

Operating profit arises exclusively .from .core trading. activity - i.e. operations.

That is described as sales revenue arising solely from core trading activity less the day-to-day expenses and overheads directly associated with running the business. 

Financial Overheads

Non-interest financial fees such as bank and other service charges; for example in respect of charge card transactions or factoring, are included in operating overheads; "service" being the operative word. 

Interest charges on the other hand are excluded, as these are costs incurred in support of the company's financing activity, not its core trading.

Exceptional Profits or Charges

Apart from interest charges, other items excluded from operating profit are income from investments, interest received from company cash on deposits, taxes and profits or losses arising from the disposal of fixed assets.

Exceptional profits or losses are only applied to profit and loss once the operating profit has been struck.

To see what all of this looks like in practice, take a look at this working example of a Figurewizard profit and loss forecast.

FAQs
Corporation Tax and Marginal Relief From 2023 Deferred Income Explained What is a Monthly Cash Flow Forecast What is Pretax Profit How does a balance sheet balance? Lockdown Recovery: Forecasting Profits, Cash and Finance. How to Apply for Business Interruption Scheme with Figurewizard How to calculate liquidity and short-term liquidity How to calculate markup and margin The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow? What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions How Depreciation is Calculated What is Business Operating Activity What are Fixed Assets Liquidity and Cash Flow Balance Sheet Liabilities and Leases Stock or Inventory Control What is Distressed Stock or Inventory What is Interest Suspense Account Product Safety Laws What is a Bill of Exchange What is Payment at Sight What is a Pro Forma Invoice What is a Bill of Lading What is a packing note What is Demurrage Cash Flow Forecasts and Planning Factoring: Invoice Discounting and Cash Flow How Does VAT Work Figurewizard as a Sales Aid for Factoring and Invoice Discounting