Positive operating income will result if gross margin exceeds
operating expenses.
total operating expenses.
Operating income is calculated by subtracting total operating expenses from gross profit. Gross margin refers to the percentage of revenue that remains after deducting the cost of goods sold. So, when the gross margin exceeds the total operating expenses, it means that there is sufficient revenue to cover all the operating costs, and there is still some profit left over.
This is a positive sign for the business because it means that they are able to generate a profit from their operations. A positive operating income allows the business to invest in growth and expansion, pay dividends to shareholders, and pay back loans or debts, which ultimately increases the value of the business.
On the other hand, if the total operating expenses exceed the gross margin, the business is operating at a loss, which is not a desirable outcome. This can lead to a negative impact on the company’s financial position, which can hinder growth and cause financial distress.
Therefore, to achieve positive operating income, it’s crucial for a business to focus on improving their gross margin and controlling their operating expenses effectively. This will help them to maximise revenue and minimise costs, and ultimately achieve sustainability and long-term success.
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