what are operating earnings 
operating earnings is a corporate finance and accounting term that isolates the profits realized from a business s core operations specifically it refers to the amount of profit realized from revenues after you subtract those expenses that are directly associated with running the business such as the cost of goods sold cogs general and administration g a expenses selling and marketing research and development depreciation and other operating costs operating earnings are an important measure of corporate profitability because the metric excludes non operating expenses such as interest payments and taxes it enables an assessment of how well the company s chief lines of business are doing understanding operating earningsoperating earnings lie at the heart of both internal and external analysis of how a company is making money as well as how much money it s making the individual components of operating costs can be measured relative to total operating costs or total revenues to assist management in running a company operating earnings are usually found within a company s financial statements specifically towards the end of the income statement though it gets close to the nitty gritty operating earnings aren t quite the famed bottom line that truly signals how well or how poorly a firm is faring that status belongs to a company s net income net indicating what remains after deducting taxes debt repayments interest charges and all the other non operating debits a business has encountered operating earnings is a term that can be used interchangeably with operating income operating profit and earnings before interest and taxes ebit operating earnings vs operating marginmany variants of metrics stemming from operating earnings can also be used to compare a given company s profitability with those of its industry peers one of the most important of these metrics is the operating margin which is closely tracked by management and investors from one quarter to the next for an indication of the trend in profitability expressed as a percentage operating margin is calculated by dividing operating earnings by total revenues or as a formula operating margin operating earnings revenue begin aligned text operating margin frac text operating earnings text revenue end aligned operating margin revenueoperating earnings management uses this measure of earnings to gauge the profitability of various business decisions over time external lenders and investors also pay close attention to a company s operating margin because it shows the proportion of revenues that are left over to cover non operating costs such as paying interest on debt obligations highly variable operating margins are a prime indicator of business risk by the same token looking at a company s past operating margins and trends over time is a good way to gauge whether a big increase in earnings is likely to last example of operating earningsassume gadget co had 10 million in revenues in a given quarter 5 million in operating expenses 1 million in interest expense and 2 million in taxes gadget co s operating earnings would be 5 million 10 million in revenue 5 million in operating expenses its operating margin is 50 5 million in operating earnings 10 million in revenue net income would then be derived by subtracting interest expenses and taxes and then netting out any one time or unusual gains and losses from the operating earnings gadget co s net income is therefore 2 million special considerationssometimes a company presents a non gaap adjusted operating earnings figure to account for one off costs that management believes are not part of recurring operating expenses non gaap earnings are an alternative accounting method that varies from the generally accepted accounting principles gaap that u s firms are required to use on financial statements many companies report non gaap earnings in addition to their earnings based on gaap a prime example is expenses stemming from restructuring a type of corporate action taken that involves significantly modifying the debt operations or organization of a company as a way of limiting financial harm and improving the business management may add back these costs to present higher operating earnings on an adjusted basis however critics could point out that restructuring costs should not be classified as one offs if they occur with some regularity 