Income from operations / Business earnings

The long-term effectiveness of a business is determined by the result of normal business operations. This is shown by the income from operations or business profit or loss, P&L. This is the most suitable data for the objective qualification of a company.

The income from operations is part of the company's profit and loss account that shows the result of the core activity. In the statement of the income from operations, the revenues of the production, service and other activities carried out by the farmer on a regular, business-like basis are taken into account. These are contrasted with the costs of the activity, as well as the expenses and revenue of related, complementary activities. The revenue and expenses of domestic and export sales are also included in the statement.

The income from operations can be determined in two ways: using the total cost method or the cost of sales method. The business decides which one to choose.

In the case of a total cost method, it is taken into account on the revenue side

• the net sales revenue accounted for in the for the business year,  
• the value of own performances included in the assets, 
• other income

They count on the spending side

• with material costs accounted for in the for the business year, 
• with intellectual property, 
• with the depreciation (charge), 
• with other operating charges.

In this method, the income from operations is given by the difference between the sum of the revenue and expenditure sides.

In the cost of sales method, the direct costs of sales and the indirect costs of sales are contrasted with the net sales revenue of the for the business year. In addition, the difference between other revenues and other expenses is taken into account. The combined value of these two elements is the income from operations.

It is recommended to choose the total cost method for smaller, non-productive businesses with a simple structure. 

The two versions of the statement of income from operations differ only in their calculation methodology. In the two versions of profit and loss account, the net sales revenue, other revenues and other expenses are shown with the same content and the same amount. For the two versions, the numbers differ by the value of the own work capitalised. The same difference appears in expenditures. This is the reason why the amount of income from operations calculated based on the two versions is the same. 

If we add the extraordinary profit to the income from operations, we get the company's earnings before interest and taxes). EBIT and the result of P and L from transactions are the company's result before the split. If we subtract the taxes from the earnings before taxes, we get the company's after- profit after taxes, after-tax P and L.