Net Operating Income

Net Operating Income (NOI) is a measure of a company's or property's profitability from its core operations, calculated by subtracting operating expenses from total revenue, excluding taxes and interest payments. It is widely used in real estate and corporate finance to evaluate the income-generating potential of an asset. NOI gives a clear view of operational performance before the effects of financing are considered.

A property investor assessing a commercial building might calculate the NOI by taking the annual rental income of $200,000 and subtracting operating expenses such as maintenance, insurance, and property management fees totalling $80,000, resulting in an NOI of $120,000. Traders and investors in real estate investment trusts (REITs) use NOI to evaluate the operational efficiency of the properties held within the fund, which directly impacts dividend distributions and overall valuation.