Operating Margin

Operating Margin

A ratio used to measure a company's pricing strategy and operating efficiency.

Calculated by:

Notes:

Operating margin basically gives analysts an idea of how much a company makes from each dollar of sales, before interest and taxes. When looking at operating margin to determine the quality of a company, it is best to look at the change in operating margin over time and to compare the company's yearly or quarterly figures to those of its competitors. If the company's margin is increasing, it means it is earning more per dollar of sales. The higher the margin, the better.

For example, if a company has an operating margin of 12%, this would mean that it makes $0.12 (before interest and taxes) for every dollar of sales.

Also known as "operating profit margin" or "net profit margin".

See also: Net Sales, Operating Expenses, Operating Income, Revenue