Term
Operating result
The profit or loss from a company's main activity before financial items and tax: sales and other operating income minus operating costs. It roughly corresponds to EBIT and shows whether the business itself is doing well.
Updated
What it means
The operating result, formally the result from economic activity, is the profit or loss from a company's main business before financial items and tax. It is calculated as sales and other operating income minus operating costs, including consumption, personnel costs and depreciation.
In the Slovak profit and loss statement it is a separate subtotal. The financial result, meaning interest, exchange differences and income from securities, is added to it, and after tax the profit or loss for the period emerges.
The operating result roughly corresponds to EBIT and shows whether the business itself is performing, irrespective of how it is financed. A company can have a good operating result and a loss after interest, which points to a debt problem rather than a business model problem.
How it works in practice
In analysis, the operating result is compared with sales as the operating margin. Its trend shows whether the company can hold prices, control costs and grow efficiently. Comparison with competitors' published statements helps reveal weak spots.
Banks and investors look at the operating result adjusted for one-off items such as asset sales, extraordinary write-downs or litigation. This adjusted figure predicts future performance better than the unadjusted number in the financial statements.
The operating result is not cash. Operating cash flow differs from it by depreciation and changes in working capital. A profitable company can run short of cash if receivables and inventory pile up.
What to watch out for
Items must be classified consistently between operating and financial. If exchange differences on trade invoices are shown as operating one year and financial the next, year-on-year comparison becomes meaningless. Legislation and the accounting policy set the rules.
Definitions of EBIT in contracts, such as loan covenants or price mechanisms in a company sale, may not match the operating result in the financial statements. Negotiations should spell out exactly which items are added back and which are deducted.
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