Operating Margin

Key Highlights

• Operating Margin, sometimes called return on sales (ROS), is a measure of how much profit a company makes from its main business activities.

• Operating Margin = (Operating Income / Revenue) × 100

What is Operating Margin?

Operating Margin, sometimes called return on sales (ROS), is a measure of how much profit a company makes from its main business activities after paying for things like production costs, employee salaries, and office expenses, but before dealing with interest or taxes.

Formula

Operating Margin = (Operating Income / Revenue) × 100

Key Points

• Operating Income (EBIT): This is the money left after subtracting the cost of making products and running the business (like wages and rent), but not interest or taxes.

• What It Tells You: A higher percentage means the company is good at turning sales into profit from its core operations.

• Compare Within Industries: It’s most useful for comparing companies in the same industry since costs differ across sectors.

• Why It’s Reported: Shows how much profit comes from each dollar of sales, in percentage form.

Why It Matters?

Investors and lenders love this number because it shows how well a company runs its main business and how much money is left to cover other costs or boost overall profits.