What is operating profit?

Operating profit (definition)

Operating profit is the money left after paying all business costs, but before paying tax.

An operating profit shows that your business can generate more money than it spends. However you still have taxes to pay before getting to net profit (which is the money you get to keep).

Operating profit formula shows that gross profit minus operating expenses equals operating profit.

Operating profit is the money you make before taxes

When calculating operating profit, your accountant makes two extra adjustments that aren’t shown in this formula. They will:

  • lower your profit to account for the wear and tear on equipment; this is called depreciation and it’s done because you’ll eventually need to pay to replace that stuff
  • increase your profit by removing interest payments from your costs

Interest payments are removed because operating profit is based only on things the business can control. A business doesn’t set its own interest rates, so they’re removed. For this reason, operating profit is also known as earnings before interest and tax (EBIT).

See related terms

Handy resources

Advisor directory

You can search for experts in our advisor directory

Find an advisor

How to manage your finances and cash flow

Learn about money management for your small business

Read article

Financial reporting

Keep track of your performance with accounting reports

Find out more


This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.