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…

Building Trust Jonathan Poland

Building Trust

To build trust, it is necessary to engage in ongoing behavior that…

Cash Conversion Cycle Jonathan Poland

Cash Conversion Cycle

The cash conversion cycle (CCC) is a financial metric that measures the…

Sales Tactics Jonathan Poland

Sales Tactics

Sales tactics are specific strategies or approaches that salespeople use to persuade…

Domain Knowledge Jonathan Poland

Domain Knowledge

Domain knowledge refers to a person’s understanding, ability, and information about a…

Analytical Skills Jonathan Poland

Analytical Skills

Analytical skills are the abilities, knowledge, and experience related to the gathering,…

Change Strategy Jonathan Poland

Change Strategy

Change strategy is the process of planning and implementing change within an…

Customer Advocacy Jonathan Poland

Customer Advocacy

Customer advocacy is a customer service strategy that involves employees representing and…

Product Quality Jonathan Poland

Product Quality

Product quality refers to the inherent characteristics of a product that determine…

Advertising Jonathan Poland

Advertising

Advertising is a form of marketing that involves the use of paid…

Jonathan Poland © 2023

Search the Database

Over 1,000 posts on topics ranging from strategy to operations, innovation to finance, technology to risk and much more…

Good Failure Jonathan Poland

Good Failure

Good failure, also known as productive failure, refers to the idea that…

Job Orientation Jonathan Poland

Job Orientation

Job orientation, also known as onboarding, is the process of introducing new…

Dismissing Employees Jonathan Poland

Dismissing Employees

Letting go (aka firing) employees is a difficult and sensitive task, and…

Tactical Risk Jonathan Poland

Tactical Risk

Tactical risk refers to the potential for losses due to changes in…

Job Levels Jonathan Poland

Job Levels

Job levels, also known as career levels or job grades, refer to…

Go-To-Market Strategy Jonathan Poland

Go-To-Market Strategy

A go-to-market strategy is a plan that outlines how a business will…

Pricing Strategy Jonathan Poland

Pricing Strategy

Pricing strategy is the process of determining the right price for a…

Sticky Information Jonathan Poland

Sticky Information

Sticky information is information that is difficult to transfer. This is an…

Customer Expectations Jonathan Poland

Customer Expectations

Customer expectations refer to the base assumptions that customers make about a…