Which expression correctly defines operating profit?

Which expression correctly defines operating profit?

• A. Net income before taxes
• B. Sales revenue - cost of sales
• C. Gross profit minus operating expenses
• D. Sales revenue - cost of sales - operating expenses

Answer: (D)

Operating profit shows how much profit a business earns from its ordinary operations after subtracting the costs tied to making the goods and running the business, but before interest and taxes. The expression that captures this is revenue minus cost of sales minus operating expenses, because it starts with total revenue and deducts both the cost to produce the goods (cost of sales) and the ongoing operating costs. What’s left is profit from core operations. This is mathematically the same as gross profit minus operating expenses, since gross profit is revenue minus cost of sales. The other expressions don’t fit: net income before taxes mixes in items outside regular operations, and revenue minus cost of sales is just gross profit, not operating profit.

Operating profit shows how much profit a business earns from its ordinary operations after subtracting the costs tied to making the goods and running the business, but before interest and taxes. The expression that captures this is revenue minus cost of sales minus operating expenses, because it starts with total revenue and deducts both the cost to produce the goods (cost of sales) and the ongoing operating costs. What’s left is profit from core operations. This is mathematically the same as gross profit minus operating expenses, since gross profit is revenue minus cost of sales. The other expressions don’t fit: net income before taxes mixes in items outside regular operations, and revenue minus cost of sales is just gross profit, not operating profit.