Operating Income vs Net Income: The Difference, With SaaS Examples

Operating income is revenue minus cost of revenue and operating expenses: the profit from running the business. Net income is operating income plus non-operating income, minus interest expense, non-operating losses and income tax: the bottom line. Operating income shows whether the business model works. Net income shows what is left for shareholders after financing and tax.

The two lines usually move together, which is why many readers treat them as one number. In software companies they often do not. A SaaS company with a large cash balance can post an operating loss and positive net income in the same year, and a single tax entry can make net income several times larger than operating income. This guide lays out both lines side by side, walks the income statement from revenue to net income, sorts out where EBIT and EBITDA fit, and then works one illustrative SaaS P&L and two real 10-K filings.

What is the difference between operating income and net income?

Operating income measures the profit of the core business. Net income measures the profit of the whole company after interest, other gains and losses, and tax. Everything between the two lines is non-operating. Operating income is the line management controls. Price, discounting, hosting cost, headcount and marketing spend all land above it. Net income adds the decisions that sit with the CFO and the board (how much cash to hold, how much debt to carry, which investments to sell) and the tax position, which can swing for reasons that have nothing to do with this year's operations.

The income statement walk: from revenue to net income

Each line is the one above it minus one more layer of cost, or plus or minus one more group of non-operating items. Here is the order on a typical US GAAP income statement for a SaaS company. Steps 6 to 8 are the non-operating section. Some companies show them as separate lines; others fold them into one line called "interest and other, net." Step 10 can be positive, as the DocuSign example below shows. For the full set of profit lines and their margins on a smaller P&L, see ORM's guide to revenue vs profit.

Operating income vs EBIT vs EBITDA vs net income

Operating income and EBIT are often the same number, EBITDA adds back depreciation and amortization, and net income is the only one of the four that is a GAAP bottom line. The difference between operating income and EBIT is where most pages on this search go wrong. EBIT stands for earnings before interest and taxes. If you build it bottom-up from net income, adding back only interest and tax, any other non-operating gain or loss stays inside it. So when a company books a large gain on an investment, EBIT rises and operating income does not. Analysts also differ on whether to remove interest income when calculating EBIT, so check the definition any time an EBIT figure is quoted. Operating income has no such ambiguity: it is a line the company reports.

EBITDA goes the other way. It starts at operating income and adds back depreciation and amortization, which are non-cash charges. For an asset-light SaaS company, D&A is small, so EBITDA and operating income usually sit close together. ORM's glossary on EBITDA margin covers how to read it and where it misleads.

What counts as non-operating income and expense?

Non-operating items are income and costs that do not come from selling, delivering or building the product. They belong to how the company is financed and what else it owns.

• Interest income on cash, money market funds and short-term investments. For a SaaS company that raised a lot of capital or has been cash-generative for years, this can be large.
• Interest expense on term loans, revolving credit and convertible notes.
• Gains and losses on investments, such as a stake in a private company that is sold or written down.
• Gains or losses on extinguishment of debt, when a company buys back its own notes for less or more than their carrying value.
• Foreign exchange gains and losses on balances held in other currencies.

Restructuring charges are the item that most often confuses people. They feel one-off, but most companies report them inside operating expenses, so they reduce operating income. Both Okta and DocuSign report restructuring on its own line within operating expenses in the filings below.

Worked example: a SaaS P&L with an operating loss and positive net income

This illustrative SaaS company has $40 million of revenue, a $1.2 million operating loss and $180,000 of net income. All numbers are illustrative. The company holds a large cash balance from earlier funding rounds and has a small venture debt facility. How to read it:

• The business loses money; the company does not. Operating expenses take 79% of revenue against a 76% gross margin, so operating income is negative. $1.5 million of net non-operating income turns that into a small profit. Without the cash pile, the same business would report a net loss.
• EBIT and operating income differ by the FX loss. Built back from net income, EBIT is -$1,300,000, $100,000 lower than operating income, because the foreign exchange loss is non-operating. If an analyst leaves interest income in, EBIT becomes +$700,000. Same company, three different "operating" numbers.
• The tax line does not follow the 21% rate. The federal corporate rate is 21% under IRS Publication 542, but a company with past losses often pays mainly state minimums and foreign taxes, so its tax line looks unrelated to pretax income.

Sales and marketing plus G&A, the company's SG&A, is 54% of revenue. That is where most operating income decisions get made.

Real examples: Okta and DocuSign, fiscal 2025

Two public SaaS companies with fiscal years ending January 31, 2025 show the gap in both directions. Figures are from each company's Form 10-K on SEC EDGAR, consolidated statements of operations. Okta (10-K for fiscal 2025) reported an operating loss of $74 million, -2.8% of revenue, and net income of $28 million. The $120 million of "interest and other, net" did the work: interest income on its investments and a $19 million gain from repurchasing convertible notes below carrying value. Its operating loss also includes $565 million of stock-based compensation, a non-cash expense equal to about 22% of revenue, shown in the cash flow statement of the same filing. Sales and marketing alone was $965 million, about 37% of revenue. DocuSign (10-K for fiscal 2025) reported operating income of $199.9 million, a 6.7% operating margin, and net income of $1.07 billion, about 36% of revenue and 5.3 times operating income. The filing explains that the $819.9 million tax benefit was "primarily attributable to the release of valuation allowances related to U.S. federal and certain state deferred tax assets of $837.3 million." In plain terms, the company concluded it would now be profitable enough to use tax losses it had built up, and booked their value at once. Its operating business did not become five times more profitable that year.

Both cases point the same way. Operating income told you how the business performed. Net income needed a footnote.

Why can SaaS operating income be negative while net income differs?

Because SaaS companies spend on growth inside operating expenses, and hold cash, debt and tax assets that only show up below the operating line. Four reasons recur.

• Growth spend lands before the revenue. Sales and marketing is paid now to win subscriptions recognized over the next one to three years. A company growing fast reports a lower operating income than a steady one with the same customers. The operating margin entry covers why that can be a deliberate choice.
• Stock-based compensation is an operating expense. It costs no cash in the period but reduces operating income in full, which is why Okta's $565 million matters to its $74 million operating loss.
• Cash balances earn interest. A company that raised hundreds of millions earns interest below the operating line. When rates are higher, that interest can exceed a small operating loss, as in the example above.
• Tax entries follow the past, not the year. Loss carryforwards keep the tax line small for years, and releasing a valuation allowance can add a one-time benefit far larger than the year's operating income.

The reverse also happens. A company with heavy debt can report positive operating income and a net loss, because interest expense eats the operating profit. Companies bought with borrowed money often look this way.

How should a SaaS board read the two lines?

Manage to operating income, explain net income. Pete Furseth's view from ORM's work with B2B SaaS finance teams is that "credibility is won in the detail": a number a board trusts is consistent from slide to slide, traceable down to what drove it, and shown as a range. A one-line bridge from operating income to net income (interest income, interest expense, other gains and losses, tax) does that. When net income jumps, the bridge shows whether the business improved or the tax line did.

Two operating levers are worth naming, because they move operating income without touching anything below it.

• Discounting to pull deals forward. Pete's point is that a pulled-forward deal usually costs twice: price erodes because the deal is discounted, and next quarter starts with less pipeline, which then needs more pipeline generation spend. In the illustrative P&L, one $200,000-a-year contract pulled in at a 20% discount takes $40,000 a year off revenue once recognized and the same $40,000 off operating income, taking the loss from $1,200,000 to $1,240,000.
• Sales capacity planning. Sales cost is the largest operating expense line in most SaaS P&Ls. Pete reports that ORM's optimization models, which choose which sales roles to hire, where and when, typically find 10% to 15% lower sales cost for the same revenue target, or 10% to 15% more productive capacity for the same budget. In the example, 10% of a $15.2 million sales and marketing line would be $1.52 million, enough to turn the operating loss positive. That figure is illustrative; actual results depend on the company.

Pete also notes that when interest rates rise, private equity owners tend to cut costs to increase earnings. The cuts they make are almost always above the operating line, which is why buyers and lenders look at operating income and EBITDA first.

Operating income and net income formulas for Excel and Google Sheets

With revenue in B2, cost of revenue in B3, sales and marketing in B4, R&D in B5, G&A in B6, depreciation and amortization in B7, interest income in B8, interest expense in B9, other non-operating gains and losses in B10 (a loss as a negative number) and income tax in B11:

Example inputs: B2 $40,000,000, B3 $9,600,000, B4 $15,200,000, B5 $10,000,000, B6 $6,400,000, B7 $1,000,000, B8 $2,000,000, B9 $400,000, B10 -$100,000, B11 $120,000. To run these lines month by month, ORM's free profit and loss template has the same structure with margin columns. To project them forward under scenarios, see the pro forma income statement guide.

Where ORM fits

Operating income starts with revenue, and revenue starts with the forecast. ORM builds forecast and capacity models for B2B SaaS companies from CRM and finance data and targets 95% forecast accuracy. A revenue forecast that lands within range makes the operating plan, and the operating income in it, something the board can rely on.

Sources

All checked on November 2, 2026. This page explains how the income statement works; it is not accounting or tax advice.

• Okta, Inc., Form 10-K for the fiscal year ended January 31, 2025 (SEC EDGAR): consolidated statements of operations and cash flows; interest and other, net explanation.
• DocuSign, Inc., Form 10-K for the fiscal year ended January 31, 2025 (SEC EDGAR): consolidated statements of operations; income tax note on the $837.3 million valuation allowance release.
• IRS, Publication 542, Corporations: corporations figure their tax by multiplying taxable income by 21%.