Net Operating Income
QUICK ANSWER
Net Operating Income is the profit a business earns from its core operations after deducting operating expenses, but before interest and taxes.
In depth
Net Operating Income is calculated as Revenue minus Operating Expenses, excluding interest and taxes. It focuses purely on how efficiently a business runs its core operations without the impact of financing decisions or tax structures. This makes NOI useful for comparing operational performance across companies. For startups, it provides insight into whether the underlying business model is sustainable before considering external factors like debt or tax obligations. A consistently improving NOI suggests better cost control, stronger margins, and progress toward long-term profitability.
Example
Let’s consider a real-world example of a startup evaluating its operating performance.
The business reports:
Revenue: $300,000
Operating costs (salaries, tools, rent): $180,000
Calculate NOI:
NOI = $300,000 – $180,000 = $120,000