Definition of Operating Profit (or Loss)

the difference between the revenues of a business and the related costs and expenses, excluding income derived from sources other than its regular activities and before income deductions; synonymous with net operating profit (or loss), operating income (or loss), and net operating income (or loss). Income deductions are a class of items comprising the final section of a company's income statement, which, although necessarily incurred in the course of business and customarily charged before arriving at net income, are more in the nature of costs imposed from without than costs subject to the control of everyday operations. They include interest; amortized discount and expense on bonds; income taxes; losses from sales of plants, divisions, major items of property; prior-year adjustments; charges to contingency reserves; bonuses and other periodic profit distributions to officers and employees: write-offs of intangibles: adjustments arising from major changes in accounting methods, such as inventory valuation and other material and nonrecurrent items. In the wake of the Enron debacle in 2002, Standard & Poor's announced a new definition of operating earnings, whereby restructuring and certain other expenses that are not generally included by many companies in their operating earnings figure will be include, and certain gains will be excluded. Two controversial examples: Pension gains are excluded from core earnings by the S&P definition while employee stock-option costs are included. In several highly publicized cases, earnings have been inflated by exaggerated returns on pension fund investments and executive compensation not reflected as an expense.