Definition of Operating margin:
A company’s operating margin, also known as return on sales, is a good indicator of how well it is being managed and how risky it is. It shows the proportion of revenues that are available to cover non-operating costs, like paying interest, which is why investors and lenders pay close attention to it.
Operating margin measures how much profit a company makes on a dollar of sales after paying for variable costs of production, such as wages and raw materials, but before paying interest or tax. It is calculated by dividing a company’s operating income by its net sales.
Gross margin less depreciation and taxes. The formula for operating margin is operating income divided by net sales. Operating margin gives a more accurate picture of a firms profitability than the gross margin.
How to use Operating margin in a sentence?
- To calculate the operating margin, divide operating income (earnings) by sales (revenues).
- Operating margin is a profitability ratio that shows how much profit a company makes from its core operations in relation to the total revenues it brings in.
- Earnings before interest and taxes (EBIT) is the same metric as operating income and can be used in calculating operating margin.
- An increasing operating margin over a period of time indicates a company whose profitability is improving.
- Operating margin helps investors understand how a business makes money; if it is generating income primarily from core operations, or other means, such as investments.
- Operating margin is the profit a company makes on a dollar of sales after paying for variable costs but before paying any interest or taxes.
Meaning of Operating margin & Operating margin Definition