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Operating Margin Formula:
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Operating Margin is a profitability ratio that measures what percentage of a company's revenue is left over after paying for variable costs of production like wages and raw materials. It shows how efficiently a company is managing its operations and generating profits from its core business activities.
The calculator uses the Operating Margin formula:
Where:
Explanation: This ratio indicates how much profit a company makes on each dollar of sales after paying for variable costs but before paying interest or tax.
Details: Operating Margin is a key indicator of a company's operational efficiency and pricing strategy. It helps investors and analysts compare companies within the same industry and assess management's ability to control costs.
Tips: Enter operating income and revenue in USD. Both values must be positive numbers, with revenue greater than zero. The result will show the operating margin as a percentage.
Q1: What is a good operating margin?
A: A good operating margin varies by industry, but generally, margins above 15% are considered strong, while margins below 5% may indicate operational challenges.
Q2: How is operating income different from net income?
A: Operating income excludes interest and taxes, focusing only on core business operations, while net income includes all expenses and revenues.
Q3: Why is operating margin important for investors?
A: It shows how efficiently a company converts sales into profits and can indicate competitive advantages and pricing power.
Q4: Can operating margin be negative?
A: Yes, a negative operating margin indicates the company is losing money on its core operations before considering interest and taxes.
Q5: How often should operating margin be calculated?
A: It should be calculated quarterly and annually to track operational efficiency trends over time.