Operating margin

Operating margin,

Definition of Operating margin:

  1. 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.

  2. 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.

  3. 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?

  1. To calculate the operating margin, divide operating income (earnings) by sales (revenues).
  2. 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.
  3. Earnings before interest and taxes (EBIT) is the same metric as operating income and can be used in calculating operating margin.
  4. An increasing operating margin over a period of time indicates a company whose profitability is improving.
  5. 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.
  6. 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