When evaluating a company's financial statements, there are plenty of metrics to look at when determining how a company is performing. Some of these metrics are very similar but provide a slightly different view of how a company is run, what its earnings look like, and what to expect in the future.

Two of the most common reportable income figures are gross profit and 澳洲幸运5开奖号码历史查询:operating income. Though similar, both shine a different light on certain aspects of🅰 a business.

Gross Profit and Operating Income

Both the operating income and gross profit show the 澳洲幸运5开奖号码历史查询:income earned by a compꦚany. However, the two metrics have different credits and deductions considered during their calcul൲ations. Both systems are essential in analyzing a company's financial well being.

Gross Profit

Gross profit is the income earned by a company after deducting the direct costs of producing its products. For example, if you sold $100 worth of widgets and it cost $75 for your factory to produce them, then🔯 your gross profit would be $25. Gross profit is calculated as: 

Gross profit = Revenue - Cost of Goods Sold

澳洲幸运5开奖号码历史查询:Revenue is the total amount of sales generated in a period. You'll often hear analysts refer to revenue as the top line for a company and that's because it sits at the top of the income statement. As you work your way down the income statement, costs are subtracted from revenue to ultimately calculate net income or the 澳洲幸运5开奖号码历史查询:bottom line.

The 澳洲幸运5开奖号码历史查询:cost of goods sold (COGS) is the direct cost associated with producing goods. COGS includes both direct labor costs and any costs of materials used in producing or澳洲幸运5开奖号码历史查询: manufacturing a company's products.

Gross profit measures how well a company generates profit from its direct labor and direct materials. Gross profit 澳洲幸运5开奖号码历史查询:doesn't include non-produ👍ction costs such as adminis🐷trative costs for the corporate offܫice. Only the profit and costs associated with the production facility are included in the calculation. Some of the costs could include:

• Direct materials
• Direct labor
• Equipment costs involved in the production
• Utilities for the production facility
• Shipping costs

Operating Income

Operating income is a company's profit after subtracting 澳洲幸运5开奖号码历史查询:operating expenses or the costs of running the daily business. For investors, the operating income helps separate out the earnings for the company's operating performance by excluding interest and taxes, which are deducted later to arrive at net income.

These operating expenses include s💎elling, general and administrat🐎ive expenses (SG&A), 澳洲幸运5开奖号码历史查询:depreciation, and 澳洲幸运5开奖号码历史查询:amortization, and other operating expenses. Operating income does not include money earned from investments in other companies or non-operating income, taxes, and interest expenses.

Also, any nonrecurrin🏅g items are not included, such as cash paid for a lawsuit settlement. Operating inco💖me can also be calculated by deducting operating expenses from gross profit.

Example of Gross Profit and Operating Income

To illustrate the difference between operating income and gross profit, we'll analyze the income statement from J.C. Penney for the year ending in 2017, as reported in its 10K annual statement:

• Revenue or Total Net Sales = $12.5 billion. The net sales are its top line.
• Gross Profit = $4.3 billion (Total revenue of $12.5 billion - COGS of $8.2 billion).
• Operating Income = $116 million (highlighted in blue below). The expenses that were deducted beyond the gross profit calculation sit below COGS to arrive at operating income. In calculating operating income, costs and expenses were deducted from net sales, including the cost of goods sold of $8.1 billion and SG&A of $3.4 billion (costs not directly tied to production), for a total of $12.39 billion (highlighted in red below).
• Net income = -$116 million (a loss), which included interest in outstanding debt of $325 million, putting the company in the red. 

The Bottom Line

J.C. Penney earned $116 million in ope🌳rating income and earned $4.3 billion in gross profit. Although operating income was positive, after taking out the cost of debt servicing, the company took a loss for the year. 

The difference between the numbers shows why analyzing financial statements is so critical to investors before buying a stock. Each investor might come to a different conclusion about the financial performance of J.C. Penney by evaluating the numbers at different stages in the business cycle. The above example shows the importance of using multiple metrics in analyzing the 澳洲幸运5开奖号码历史查询:profitability of a company.