An organization’s daily maintenance and management are accompanied by operating costs. Direct costs of goods sold (COGS) and other operational costs, also known as selling, general, and administrative (SG&A), are included in operating costs. These costs include rent, wages, and other overhead expenditures, as well as prices for raw materials and maintenance. Non-operating finance costs like interest, investments, and currency exchange are not included in operational costs.
Operating income is calculated on a company’s income statement by subtracting operating costs from revenue. Companies must keep track of both running expenditures and expenses related to non-operating activities, such as interest payments on loans. Because the two expenses are recorded differently in a company’s records, analysts may assess how the costs are related to its revenue-generating operations and if it can be handled more effectively.