Profitability Series: The Great Balancing Act of Managing Your Own Operating Income

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As we drill down through our profitability series, it’s very important to consider managing –or being aware of — your operating income.

You may feel like you are swimming in metrics. After all, you can measure dozens of metrics. There are sales metrics. Recruiting metrics. And lots of different financial metrics. There are backward-looking metrics that tell you how you are currently doing. And forward-looking performance indicators that can help you forecast how you will be doing. But in terms of assessing the value your firm, looking at your efficiency, your profitability, and your capacity for growth, it’s impossible to overlook the key metric of operating income.

What is operating income?

Operating income is a measure of company operations. It is also one of the most common financial ratios used for valuing a company as a whole.

Simply put, operating income is the amount of income (or loss) you have after you subtract your operating expenses from your gross profit. Operating expenses are costs related to the day-to-day operations of your business. They include: internal employee salaries, marketing, recruitment advertising, rent, utilities, computer and office expenses, license fees, legal fees, insurance, property taxes, travel and vehicle expenses.

Operating income is also sometimes referred to as EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). It’s a measure of the profitability of your firm before you include financing costs, and this is the figure investors typically use to value your firm (staffing firms are most commonly purchased for 2 to 5 times EBITDA.

As a staffing executive, operating income is crucial for assessing the efficiency of your organization (i.e., how profitable are you relative to your sales and gross margin?), and it provides a measure of your ability to make growth investments (i.e., how much free cash flow you have available to invest in sales, marketing and expansion.

At Madison, we can help you with these figures. We’re like having a financial planning and analysis department at your fingertips. We can help you understand the significance of your operating income, and provide trends on sales gross profit, gross margin, MU % and headcounts; as well as year over year or sequential comparison options.

Are you looking for a strategic financial partner?

Give us a call today and see how we can help you turn these metrics into reality, and growth.