What is defined as 'operating income'?

Operating income is defined as the profit made from normal business operations. This metric focuses on the profitability of the company's core business activities by subtracting the operating expenses, such as cost of goods sold, wages, rent, and other routine operational costs, from the total revenue generated from those activities. It does not take into account non-operating income or expenses, such as those derived from investments or interest.

Understanding operating income is crucial for evaluating a company's operational efficiency and profitability, as it provides a clearer picture of how well the business is performing in its primary area of operations. This distinction helps stakeholders, including management and investors, assess the effectiveness of the company’s core business strategies without the noise created by other financial activities.

Other choices like total revenue before expenses or income from investments focus on broader financial aspects that do not specifically capture the essence of operating performance. Money received from interest on loans pertains to financing activities rather than operational efficiency, thereby removing it from the definition of operating income.