income statement

Operating Costs

Operating Costs Jonathan Poland

Operating costs are the expenses that a company incurs in order to generate revenues from its business operations. These costs include direct expenses such as the cost of materials and labor, indirect expenses such as rent and utilities, and may include cost of goods sold or COGS.

Operating costs are a crucial element of a company’s financial statements, as they represent the expenses associated with generating the company’s revenues. These costs are typically subtracted from a company’s revenues in order to arrive at the company’s gross profit or gross margin, which is a key measure of a company’s profitability.

Operating costs can be either fixed or variable. Fixed operating costs are expenses that do not change in relation to the level of a company’s production or sales, such as rent or salaries. Variable operating costs, on the other hand, are expenses that change in relation to the level of a company’s production or sales, such as the cost of materials or shipping.

Managing operating costs is an important part of running a successful business, as it can help a company to improve its profitability and generate higher returns for its shareholders. By carefully controlling and minimizing its operating costs, a company can increase its gross profit and net income, and improve its overall financial performance.

The following are common operating costs:

  • Advertising
  • Bad Debt Expense
  • Bank Charges
  • Cost of Goods Sold
  • Depreciation
  • Employee Benefits
  • Equipment Rental
  • Executive Compensation
  • General & Administrative Expense
  • Insurance
  • Interest
  • Legal Fees
  • Licensing Fees
  • Management Fees
  • Management Salaries
  • Meals & Entertainment
  • Office Expenses
  • Office Supplies
  • Professional Fees
  • Promotion
  • Rent
  • Repairs & Maintenance
  • Salaries & Wages
  • Sales Commissions
  • Selling Expenses
  • Software Licenses
  • Taxes
  • Tools & Equipment
  • Travel
  • Utilities
  • Vehicle Expenses

Operating Revenue

Operating Revenue Jonathan Poland

Operating revenue is the income that a company generates from its core business operations. It is a key measure of a company’s financial performance and is typically one of the first items on an income statement.

Operating revenue is different from other types of revenue, such as investment income or financing income, which are not directly related to a company’s core business operations. It is also different from non-operating expenses, such as interest expenses or losses from discontinued operations, which are not directly related to a company’s core business operations.

Operating revenue is typically calculated by subtracting the cost of goods sold and operating expenses from the total revenues earned by a company. This calculation provides a more accurate picture of a company’s financial performance, as it excludes items that are not directly related to the company’s core business operations.

There are many different types of operating revenue, as the specific sources of income can vary depending on the nature of a company’s business. Some common examples of operating revenue include:

  • Sales of goods or services: This is the most common type of operating revenue and represents the money earned by a company through the sale of its products or services.
  • Royalties: Royalties are payments made to a company for the use of its intellectual property, such as patents, trademarks, or copyrights.
  • Licensing fees: Licensing fees are payments made to a company for the use of its intellectual property or other assets.
  • Rent: Rent is income that a company earns from leasing out its property, such as buildings or land, to other businesses or individuals.
  • Dividends: Dividends are payments made to a company’s shareholders out of the company’s profits.
  • Interest income: Interest income is the money that a company earns from its investments, such as savings accounts or bonds.

Income Statement

Income Statement Jonathan Poland

An income statement is a financial statement that shows a company’s revenues, expenses, and profits over a specific period of time. It is also sometimes called a profit and loss statement or statement of operations. The income statement provides information about a company’s financial performance, including the costs of running the business, the income earned from its operations, and the net profit or loss for the period. This information is useful for both internal decision-making and external reporting to investors, creditors, and other stakeholders.

The main parts of an income statement are revenues, expenses, and net income. Revenues, also known as “sales” or “top line,” represent the money earned by the company through the sale of goods or services. Expenses, also known as “costs” or “bottom line,” represent the costs associated with generating those revenues, such as the cost of goods sold, operating expenses, and taxes. Net income, also known as “profit” or “net profit,” is the difference between revenues and expenses, and represents the amount of money the company has made or lost over the period.

Learn More
Product Benefits Jonathan Poland

Product Benefits

A product benefit is the value that a customer derives from a product or service. It is what makes the…

Intellectual Property Jonathan Poland

Intellectual Property

Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names…

IT Governance Jonathan Poland

IT Governance

IT Governance refers to the way in which an organization’s executive leadership manages and directs information technology. It is a…

What is the Iterative Process? Jonathan Poland

What is the Iterative Process?

An iterative process is a method of working through a problem or project by repeating a series of steps, each…

Talent Management Jonathan Poland

Talent Management

Talent management is the process of identifying, developing, and retaining highly skilled and capable employees within an organization. It involves…

Practical Thinking Jonathan Poland

Practical Thinking

Practical thinking is a type of thinking that focuses on finding timely and reasonable solutions to problems. This type of…

In-Store Marketing Jonathan Poland

In-Store Marketing

In-store marketing refers to the use of physical retail locations, such as stores and showrooms, as a platform for marketing…

What is an Intermediary? Jonathan Poland

What is an Intermediary?

An intermediary is a person or organization that acts as a go-between or intermediary for two or more parties in…

Waste is Food Jonathan Poland

Waste is Food

The concept of “waste is food” is based on the idea that an industrial economy should not produce any waste except for biological nutrients that can be safely returned to the environment.

Content Database

Search over 1,000 posts on topics across
business, finance, and capital markets.

Product Demand Jonathan Poland

Product Demand

Product demand refers to the desire or need for a particular product or service in the market. It is a…

Internal Benchmarking Jonathan Poland

Internal Benchmarking

Internal benchmarking is the process of comparing the performance of one aspect or function within a company to another aspect…

Administrative Burden Jonathan Poland

Administrative Burden

Administrative burden refers to the workload and effort required to comply with laws and regulations that do not directly contribute…

Strategic Planning Jonathan Poland

Strategic Planning

The strategic planning process is a systematic way for an organization to set its goals and develop the actions and…

Message Framing Jonathan Poland

Message Framing

Message framing is the way in which information and communications are constructed and presented. The way a message is framed…

Sales Planning Jonathan Poland

Sales Planning

Sales planning is the process of setting revenue and unit targets for a sales team, and developing a plan to…

Market Forces Jonathan Poland

Market Forces

The interaction that shapes a market economy. Market forces are the factors that determine the supply and demand for a…

What are Project Estimates? Jonathan Poland

What are Project Estimates?

Project estimates are used to predict the costs, task completion times, and resource needs for a project, often broken down…

Types of Fail Safe Jonathan Poland

Types of Fail Safe

A fail-safe is a mechanism or system that is designed to prevent harm or damage in the event of a…