Income From Operations (IFO)

Overview

Income from operations (IFO), also called operating income or EBIT (earnings before interest and taxes), measures the profit a business generates from its core, day-to-day activities. It isolates performance of the primary business by excluding income and expenses that are not part of regular operations.

Definition

IFO = Revenue from operations − Cost of goods sold (COGS) − Operating expenses

It represents profit from normal business activity and is used to assess a company’s operational efficiency and potential recurring profitability.

What’s included

• Revenue from the core business (sales or services)
• Direct costs tied to producing goods or delivering services (COGS)
• Operating expenses such as wages, rent, utilities, marketing, and depreciation related to operations

What’s excluded

• Interest income or expense
• Income tax expense
• Gains or losses from investments or asset sales
• One-time/nonrecurring items and other nonoperating income

Example calculations

• Simple example: A car maker spends $100,000 producing cars and sells them for $110,000. IFO = $110,000 − $100,000 = $10,000.
• Small business example: A fruit seller subtracts tree care, harvesting, selling labor, and other operating costs from apple sales revenue to arrive at the operating income for the apple business.

Why it matters

• Shows profitability from core operations without distortion from financing, taxes, or one-off transactions.
• Useful for comparing operating performance across companies and periods.
• Helps investors and managers gauge how well a business can generate profit from its primary activities and identify operational strengths or weaknesses.

Key takeaways

• IFO equals operating income/EBIT and focuses solely on operating activity.
• It excludes financing costs, taxes, and nonoperating gains or losses.
• Consistent operating income suggests sustainable core-business profitability; deviations often point to nonoperating or one-time factors.