Operating profit

Operating profit is one of the most important key figures in financial statements. It shows the company's profit from daily operations – before interest, tax, and other financial factors come into play. This key figure is often used as a guideline for whether a company's core activities are financially viable and whether operations are delivering a stable and sustainable return.

In international accounting, operating profit is referred to as EBIT (Earnings Before Interest and Taxes). In Danish, it often appears as primary result or result of primary operations.

What does the operating result show?

Operating profit measures the earning capacity of a company's core activities. It shows how much the company earns from its core business – before financing, tax, interest, and depreciation affect the bottom line.

This figure is often assessed in isolation because it provides a clear picture of operations without interference from external items.

A strong operating result is typically a sign of:

efficient operation
fair pricing
good cost management
strong demand and volume

On the other hand, a weak operating result may be a sign of rising costs or a pressured market.

Operating profit in credit and risk assessment

When companies assess their business partners or customers, operating profit is a key indicator of financial stability. A stable or rising operating profit shows that the company is generating a surplus in its daily operations – and therefore typically has better solvency.

At Collectia, we often see that companies with weak operating results or large fluctuations between years are at greater risk of late payments, liquidity pressure, and, in the worst case, default.

I et kreditopslag i Qatchr vises “Resultat af primær drift (EBIT)”, så du hurtigt får indsigt i virksomhedens driftsmæssige robusthed. Det er en vigtig brik i risikoanalysen, især når du skal fastsætte betalingsvilkår eller kreditrammer.

How is operating profit calculated?

The operating profit is calculated by taking the company's gross profit and deducting all operating costs. This is where the key figure differs from gross profit – because the operating profit goes one level deeper in the accounts.

Formula:
Operating profit = Gross profit – Operating expenses

Operating costs may include:

salary
rent
production
marketing
administration
IT and operations
depreciation of operating assets

Once these costs have been deducted, the result shows how efficiently the company is utilizing its resources.

Operating profit and gross profit – two sides of the same coin

Gross profit shows what the company earns after the cost of goods or raw materials has been paid.

The operating profit shows how much of the gross profit remains after all operating costs have been covered.

It is possible to have a high gross profit – but a low operating profit – if the cost level is too high. Therefore, the two key figures are often used together to illustrate:

whether the company has control over its direct costs
whether it also has its operating expenses under control
whether growth in turnover actually translates into profits

What is the operating profit used for in practice?

Operating profit is used in many types of analysis, including:

assess whether the company can generate a profit from its operations
to follow the development of earnings from year to year
identify areas of cost pressure
benchmarking against competitors
optimizing pricing and costs
predicting the future robustness of the company

When operating profit steadily declines over several periods, it is often a sign of structural challenges that may require action.

Operating profit per employee

A particularly interesting perspective is to view operating profit in relation to the number of employees. This key figure is popular in both industry analyses and strategic assessments because it shows how effectively the company creates value per employee.

It can be used for, among other things: