The Operating Margin is defined as a company’s profit after its cost of goods sold (COGS) and operating expenses are subtracted from the revenue generated. Operating Margin is also known as the Operating profit margin. It represents a relationship between the operating income of a company or EBIT (Earnings before Interest and Taxes) and revenue to estimate the profits before paying off non-operating expenses. High Operating Margin is considered suitable for a business as it means that the business is functioning at an optimum level while utilising its resources efficiently.
How to calculate operating margin?
It can be calculated using the Sales and operating Income, as: Operating Margin = Operating Income/Revenue or Operating Margin = (Operating Profit/Net Sales) x 100