Operating margin
Operating margin shows how much of your sales stays as operating profit after everyday business costs, like materials, wages and rent. It is calculated as operating profit divided by revenue and expressed as a percentage. It leaves out interest, taxes and other non‑operating items, so it focuses on the core business.
Simple example
If your revenue is 100 and your operating profit is 15, your operating margin is 15% (15 ÷ 100).
Use it to track efficiency over time or to compare similar businesses. It is different from gross margin (which looks only at direct costs) and net margin (which includes all costs, interest and tax).
Key points to remember:
- Formula: operating profit ÷ revenue, shown as a percentage.
- Excludes financing costs, taxes and other non‑operating items.
- Useful for comparing performance across periods or with peers.
- Higher is better, but it does not show cash flow or one‑off effects.
