Operating Income Growth(%) Ratio

A companies’ operation means its major business area. operating income growth ratio is the amount of profit realized from a business’s operation. It is a measure of companies’ profitability that tells us how much revenue will eventually be earnings for the company. It is calculated by deducting COGS and other operating expenses from revenue. A business’s operating expenses are costs incurred from normal operating activities. Operating Income shows whether the company is doing well or not. It is popularly known as EBIT (Earnings Before Interest and Tax). Operating Income growth is the change in operating income on a year-on-year basis.

Importance of Operating Income Growth Ratio

Operating income of a company is the income from its operations. The growth rate needs to be calculated as it is essential for any company to maintain operating income growth in order to survive, prosper and remain competitive. For a company to grow its operating income must grow. The growth rate must be reasonable. The rate of growth should be at par or better than the growth of the industry so that the business is competitive.

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Impact

Now, operating income growth can be due to an increase in sales or an increase in sales margin due to price rise or reduction in the cost of operations. Understanding the reason behind operating growth is crucial in analyzing a company’s performance. If the operating income growth is due to operating income efficiency, the growth is generally considered to be sustainable. Operating income growth should be compared as on year-on-year basis and also it should be compared with business in the same industry.

See also: Credit To Deposit (%)

Formula:

Operating Income = Revenue from operations – Operating expenses.

Operating Income growth (%)={Operating Income of year (n) – Operating Income of year(n-1)}/Operating Income of year(n-1)

Explanation

Suppose a company ABC has Revenue from operations Rs. 1,00,00,000. Its operating expense is Rs. 75,00,000. Then, operating income or profit = 1,00,00,000 – 75,00,000= Rs. 25,00,000.

Now, suppose last years’ operating income was Rs. 20,00,000.

Operating income growth (%) = 2500000 – 2000000)/2000000 = 25% (year-on-year basis)

Thus, the operating income growth is 25% year-on-year basis.

Stockedge App

Don’t be afraid, with the Stockedge app we don’t have to calculate operating income growth ratio (%) on our own. StockEdge gives us the ratio of the last five years of any company listed in the stock exchange. We can look and compare operating income growth (%) of any company and filter out stocks accordingly.

Suppose we want to look at operating income growth of Axis Bank Ltd. for last 5 years than in the Fundamental tab of Axis Bank Ltd., click on the fundamentals tab, we will get Ratios tab.  Then in the Ratios tab click on the Growth Ratios, we will get operating income growth(%) of Axis Bank Ltd.

Bottomline

Operating Income and Operating income growth is extremely important in assessing a company’s performance. Without operating income growth, it is very difficult for a company to compete in the industry. Healthy operating income growth is always a positive sign for a company. What better than to get operating income growth data for 5 years with a click of a button. What!!! Haven’t subscribed to stockedge yet? So what are you waiting for, subscribe immediately to use this free feature. We also have paid featured scans based on Valuations, with the help of these ready-made scans you can with a click of a button filter out good companies. These scans are part of the premium offerings of the StockEdge app.

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