Utah Contractor Practice Exam

Operating profit is also known as:

1. Pretax income

2. Personal income

3. Working capital

4. None of the above

The correct answer is: Pretax income

Operating profit is commonly referred to as pretax income because it represents the earnings of a business after all operating expenses have been deducted from gross revenue but before any taxes are applied. This metric is critical for assessing a company's operational efficiency, as it indicates how well a company is managing its day-to-day expenses relative to its income from core business activities. While personal income pertains to the earnings of individuals, working capital refers to the difference between current assets and current liabilities, and it does not measure profitability. Hence, these definitions help to reinforce the understanding that pretax income and operating profit describe the same financial concept.