What it is
Operating profit is the result of the bank's ordinary work: lending, taking deposits, charging fees, paying staff, absorbing bad loans. Tax and unusual gains or losses are not yet subtracted.
It is a cleaner measure than net profit for comparing one year with another, because tax rates and one-offs are left out.
How it is calculated
Operating profit = Total operating income − Impairment charge − Operating expenses.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's operating profit for FY 2082/83 was Rs 1,156.45 crore: total operating income of Rs 2,233.44 crore less impairment of Rs 267.72 crore and operating expenses of Rs 809.27 crore.
Operating expenses, the sum of the three printed lines: personnel expenses, other operating expenses, depreciation and amortisation.
What good looks like
Growing in line with or faster than the balance sheet. If operating profit falls while net interest income rises, look at provisions or costs.
Watch out
- Non-operating income (sale of a building, a legal settlement) sits below this line.
- A write-back of provisions flatters operating profit.
- Different filers draw the line between operating and non-operating slightly differently.
In Nepal
NRB's template shows 'Operating profit' then 'Non-operating income/expense' then 'Profit before income tax'.
Questions
Because it strips out tax and one-off items, so it shows whether the everyday business is getting better or worse.
Non-operating items and income tax. Strip those out and you are back at operating profit.