Which statement best describes merchandise net operating income?

Which statement best describes merchandise net operating income?

• A. Revenue minus Taxes
• B. Gross Margin
• C. Net Income
• D. Revenue minus (Cost of Goods + Operating Expenses)

Answer: (D)

Merchandise net operating income reflects the profitability of the merchandise operation after paying for the goods sold and the ongoing store expenses, but before financing costs and taxes. It is calculated by subtracting both the cost of goods sold and operating expenses from revenue. This captures the core operating performance of the merchandise area. Gross margin only subtracts the cost of goods sold from revenue, so it doesn’t account for operating costs. Net income goes further by also subtracting taxes, interest, and any non-operating items, so it isn’t equivalent to NOI. Revenue minus taxes misses the operating costs entirely. Therefore, subtracting both COGS and operating expenses from revenue best describes merchandise NOI.

Merchandise net operating income reflects the profitability of the merchandise operation after paying for the goods sold and the ongoing store expenses, but before financing costs and taxes. It is calculated by subtracting both the cost of goods sold and operating expenses from revenue. This captures the core operating performance of the merchandise area.

Gross margin only subtracts the cost of goods sold from revenue, so it doesn’t account for operating costs. Net income goes further by also subtracting taxes, interest, and any non-operating items, so it isn’t equivalent to NOI. Revenue minus taxes misses the operating costs entirely. Therefore, subtracting both COGS and operating expenses from revenue best describes merchandise NOI.