Operating profit (also called EBIT - Earnings Before Interest and Tax) is your profit from core business operations, excluding interest expenses and income tax.
Operating profit shows how much profit your business generates from its core operations before the effects of financing decisions (interest) and tax jurisdiction (tax). It is calculated as Revenue minus COGS minus Operating Expenses (or equivalently, Gross Profit minus Operating Expenses). Operating profit is a better measure of business performance than net profit for comparing businesses because it removes the effects of different capital structures and tax situations. A business financed entirely by equity has no interest expense, while a leveraged business may have significant interest costs - but their operating efficiency might be identical. Operating profit margin (operating profit divided by revenue) is widely used for benchmarking. SortBooks accurately calculates operating profit by correctly separating operating expenses from interest and tax in Xero.
SortBooks automates the bookkeeping processes related to operating profit by connecting to your Xero account and using AI to categorise transactions, reconcile bank feeds and generate accurate reports. Instead of manually managing operating profit, SortBooks handles it automatically with 97%+ accuracy - saving you hours every week and ensuring your books are always up to date and compliant.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It measures operating profitability by excluding non-operating expenses and non-cash charges.
Gross profit is your revenue minus the cost of goods sold (COGS). It shows how much money remains from sales after covering direct production or purchasing costs.
Net profit (also called net income or the bottom line) is your total revenue minus all expenses, including COGS, operating expenses, interest and tax. It is the final profit figure.
Operating expenses are the day-to-day costs of running your business, excluding COGS. They include rent, wages, utilities, marketing, insurance and administrative costs.
The P&L (also called the income statement) shows your business revenue, expenses and resulting profit or loss over a specific period.
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