How is 'operating income' defined?

Operating income is defined as the earnings generated from a company's core business operations before accounting for interest and taxes. This measurement focuses specifically on the profitability resulting from normal business activities, making it a crucial indicator of operational efficiency.

When calculating operating income, you subtract the cost of goods sold and operating expenses from total revenue. As a result, this figure provides insight into how well a company is performing its primary functions without the influence of financial and tax considerations. This is particularly useful for investors and analysts who want to assess the business's core operational performance, separate from other financial activities like financing costs or tax-related aspects.

The other definitions do not align correctly with this specific focus on operational efficiency. Total revenue minus all expenses, including taxes, encompasses a broader scope, while net profit after overhead costs includes more than just operating results. Lastly, gross income from all business activities does not limit itself to operating metrics, as it might also include income sources outside the core operations. Thus, the focus of operating income on fundamental business operations makes it the correct interpretation in this context.