Final answer:
Another way to write the Net Operating Income (profit) equation is by subtracting operating expenses from the total revenue generated by a business:
- Net Operating Income = Total Revenue - Operating Expenses
Step-by-step explanation:
Net Operating Income (NOI), also known as operating profit, can be calculated as the difference between a company's total revenue and its operating expenses. Mathematically, this can be represented as:
Net Operating Income} = Total Revenue - Operating Expenses
Total revenue encompasses all income generated from core business activities, while operating expenses include costs directly associated with running the business, such as wages, rent, utilities, and materials. The NOI provides a clear picture of a company's profitability solely from its primary operations, excluding non-operating revenues or expenses like interest payments or one-time gains/losses.
Understanding and analyzing the NOI is crucial for assessing a business's operational efficiency and profitability, making it a key metric for investors, lenders, and stakeholders to gauge a company's financial health and performance.