Plain definition
Operating profit is profit from operating activities before financing costs and income tax, as defined by the company’s presentation. It commonly follows gross profit after operating expenses, but classification can vary.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A company earns gross profit and incurs operating expenses, reporting operating profit before financing and tax on its stated presentation. A proposed campaign adds revenue but also support cost, so management tests its operating effect rather than sales alone.
The operations lead proposes a new service line. It adds revenue but delivery and support cost; the operating gain is tested against management time and capacity before launch.
Why it matters
A revenue increase can lower operating profit when fulfilment, support, or overhead rises faster than sales.
Practical consequence
Build the measure from gross profit and named operating costs, assign an owner to each material variance, and distinguish recurring operating cost from an exceptional item.