Operating Profit: Why It’s the Business Metric to Watch in 2025

When it comes to assessing a company’s financial health, few figures matter as much as operating profit. While revenue and net profit are often discussed, operating profit gives a clearer, more immediate picture of how well a business is truly performing. As Australia’s economic landscape faces new headwinds and policy changes in 2025, understanding operating profit is more crucial than ever for business owners, investors, and anyone interested in the financial pulse of a company.

What Is Operating Profit—and Why Does It Matter?

Operating profit—sometimes called operating earnings or EBIT (Earnings Before Interest and Taxes)—measures the profit a company makes from its core business activities, excluding the effects of interest and taxes. In simple terms, it’s the revenue left after paying for day-to-day business expenses like wages, rent, and raw materials, but before financing and tax costs come into play.

• Formula: Operating Profit = Revenue – Cost of Goods Sold (COGS) – Operating Expenses
• Excludes: Interest payments, tax expenses, and non-operating income or losses (like asset sales)

This metric is vital because it strips away the noise of financial engineering and focuses on what a company actually earns from its main operations. In 2025, with higher interest rates and ongoing supply chain challenges, operating profit is becoming the go-to measure for analysts and investors seeking transparency.

2025 Policy Updates and Their Impact on Operating Profit

This year, several policy and economic trends are reshaping how Australian companies approach their operations—and, by extension, their operating profits:

• Minimum Wage Increase: The Fair Work Commission’s July 2025 decision to raise the national minimum wage by 4% is pushing up labour costs, especially in retail, hospitality, and healthcare. Companies that haven’t streamlined their operations are seeing tighter operating profit margins.
• Energy Transition Costs: With new government incentives and stricter emissions targets, businesses are investing in greener operations. While this often means higher short-term expenses, smart companies are offsetting costs with improved efficiency—helping to stabilise operating profits.
• GST Compliance Changes: The 2025 ATO crackdown on GST compliance is forcing businesses to tighten their accounting and reporting processes. This is reducing errors and one-off adjustments that used to distort operating profit figures.

For example, Woolworths Group recently reported a 7% increase in operating profit for the first half of FY2025, despite wage pressures, thanks to major investments in supply chain automation. Meanwhile, some smaller retailers have seen their operating profits squeezed as they struggle to absorb higher costs without passing them onto customers.

How Investors and Business Owners Use Operating Profit

Operating profit isn’t just a number for accountants—it’s a key decision-making tool for a range of stakeholders:

• Investors use operating profit to compare companies within the same industry, stripping out differences caused by tax strategies or capital structures. It’s a favourite figure in company results season.
• Lenders rely on operating profit as a measure of a business’s ability to service debt, especially with interest rates on the rise in 2025.
• Business owners and managers track operating profit to spot operational inefficiencies and set realistic targets for growth and cost control.

For example, a tech startup in Sydney recently secured Series B funding after demonstrating consistent operating profit growth, despite modest revenue gains. Investors saw this as proof the company had a scalable, sustainable business model.

Red Flags and Best Practices

While operating profit is powerful, it’s not immune to manipulation. Watch for:

• One-off adjustments: Some companies reclassify expenses or include “other income” in operating profit to flatter results.
• Unusual expense timing: Delaying maintenance or marketing can temporarily boost operating profit, but hurt long-term health.

Best practice? Always review operating profit trends over several periods, and compare them to industry peers. In 2025’s climate, investors and analysts are increasingly demanding segment-level disclosures and transparent explanations for any unusual movements.

Conclusion

Operating profit is more than an accounting term—it’s the heartbeat of a company’s financial health. As Australia navigates economic shifts and regulatory updates in 2025, this metric remains a crucial lens for assessing real business performance. Whether you’re running a business or building your investment portfolio, keeping a close eye on operating profit can help you make smarter, more confident financial decisions.