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Operating margin

Principles of Finance glossary · Financial Statements, Markets & Working Capital

Definition

Operating income divided by revenue; the percentage of revenue retained after operating costs.

Operating margin in plain English

Operating margin tells you how many cents of profit a company keeps from each dollar of sales after paying the everyday costs of running the business (making the product, paying staff, rent, and so on) — but before interest and taxes. You get it by dividing operating income by revenue: if a store sells $100 of goods and $18 is left as operating profit, its operating margin is 18%. It's a quick health check on how efficiently a company turns sales into profit — a higher margin usually means a stronger, better-run business.

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Practice Operating margin

If its revenue is $1,000,000, what is its operating margin?

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