Question

What is the importance of a company's operating income?

Answer 1

The operating income depicts the income from operations of the business. This is the income from the core business operationso ft he business. A business may have income from non operational activities such as interest from investments and profit from sale of fixed assets. This may distort the Net Income figure and give an incorrect view to the users of financial statements. Hence the operating income figure is the best to use since it shows the true earnings potential of the business from its core operations.