operating income

(redirected from Operating Incomes)

Operating Income

A company's income from the goods and services it provides, less its operating expenses and depreciation. The operating income does not include losses from interest payments or income tax. For example, a widget manufacturer earns $1,000,000 in gross revenue from the sale of widgets. The widgets cost $200,000 to make and his administrative and payroll expenses total $250,000. He also must subtract $50,000 in depreciation on his widget manufacturing equipment. His operating income is stated as: $1,000,000 - $200,000 - $250,000 - $50,000 = $500,000. Operating income is closely related to earnings before interest and taxes (EBIT), but EBIT includes nonoperating income, which is usually (but not always) significantly less than operating income. See also: Net income.

operating income

The excess of revenues over expenses derived from normal business operations. Operating income, representing income from ordinary business activities, excludes expenses, such as interest and taxes. Unusual nonrecurring items, such as gains from selling a subsidiary or losses from closing a plant, are not included in the calculation of operating income. Also called earnings before interest and taxes, operating profit. Compare operating loss. See also operating revenue.

operating income

See net operating income.

References in periodicals archive ?
This method requires a comparison of the operating income that results from the consideration charged in the controlled transfer with the operating incomes of similar, uncontrolled parties.
In general, CPI is a range of hypothetical operating incomes that a "tested party" would have earned if objective measures of profitability - known as profit level indicators (PLIs) - had been equivalent to those of uncontrolled taxpayers performing similar functions.
Company income levels vary for any number of reasons unrelated to pricing decisions including (1) efficiency of operations; (2) market share and market size (which influence the degree to which the firm can act as price setter or price follower); (3) the product market (growing, mature, declining); (4) the degree to which a firm is established in a market (e.g., if the firm is new to a market, price cutting or promotions will undercut prices and profitability); (5) business strategy (product developer with high research and development, active or passive distributor, etc.); (6) cost controls; and (7) organization and productivity of the workforce.(35) More important, the operating incomes used to construct the interval include profits and losses of non-comparable transactions.
CPI is constructed by eliminating certain "comparable" companies whose results did not produce a convergence of operating incomes. The most comparable company for the tested party may, indeed, have been one or more of the companies eliminated to produce a convergent range for CPI.
possessions or low-tax jurisdictions.(11) In an ironic twist, however, the center-piece of the proposed regulations, the comparable profit interval (CPI), sanctions an approach to transfer pricing that depends upon the construction of industry operating income intervals based on profit-level indicators drawn from broad government or commercial data bases.
If the tested party's operating income is within the interval established by the CPI, the transfer price is valid.
(35) The CPI is determined by selecting those amounts of constructive operating income derived from the potential comparables for the tested party that converge to form a range that "is reasonably restricted in size." The economic theory underlying this procedure is that where there is a convergence of the constructive operating incomes (i.e., the comparables' PLIs produce similar amounts of imputed profits for the tested party), such results indicate that the potential comparables and the tested party are similar.
Since their individual PLIs vary considerably from company to company, they produce a rather broad range of constructive operating incomes, some of which are well above or well below the tested party's actual reported income.
This analysis effectively attributes to taxpayers engaged in related-party transactions an amount of operating income somewhere within a range -- referred to as the "comparable profit interval" (CPI) -- that the taxpayers would have earned had their performance been equivalent to comparable businesses operating at arm's length.
The computation of the CPI involves a host of new concepts and terms (e.g., the "tested party," "applicable business classification," "profit-level indicators," constructive operating income," and "convergence").
19 If the operating income of the tested party falls outside the CPI, however, the IRS adjustment is to take into account how far outside the interval the tested party's operating income falls (unless either no consideration was paid for the transferred intangibles or the consideration paid was substantially disproportionate to the value of the intangibles, in which case the adjustment will be base on the "most appropriate point" in the CPI).
Compared with last year, the 2019 full-year outlook assumes: North America operating income is flat assuming current market values for corn and corn by- products, which have been negatively impacted by crop inventory imbalances arising from the U.S.