The operating margin measures the profitability of a company’s core operations and indicates the percentage of revenue that remains after deducting operating expenses.
Page written by AI. Reviewed internally on May 17, 2024.
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To calculate the operating margin, you need to have the financial information of a company, specifically its revenue and operating income. Here’s how to calculate the operating margin:
Gather financial information: Obtain the company’s financial statements, such as the income statement, which provides details of the revenue and expenses.
Identify operating income: Locate the operating income figure on the income statement. Operating income, also known as operating profit or earnings before interest and taxes (EBIT), represents the profit generated from the company’s core operations before considering interest expenses and taxes.
Determine the revenue: Find the revenue figure on the income statement. Revenue represents the total amount of money generated from the company’s sales of goods or services.
Calculate the operating margin: Divide the operating income by the revenue and multiply the result by 100 to express it as a percentage. The formula for calculating the operating margin is:
Operating margin = (Operating income / Revenue) x 100
The operating margin provides insights into a company’s profitability and efficiency in managing its operational costs. It is a useful metric for comparing the performance of companies within the same industry or tracking a company’s performance over time.
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