1. What is Operating Margin?

Definition: Operating margin is a profitability ratio that shows what percentage of revenue is left after paying for variable costs of production (like wages and raw materials).

Purpose: It measures how much profit a company makes from its core operations, excluding non-operating income and expenses.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( OM \) — Operating margin (percentage)
• Operating Profit — Earnings before interest and taxes (EBIT) in dollars
• Revenue — Total sales in dollars

Explanation: The formula divides operating profit by revenue and multiplies by 100 to convert to a percentage.

3. Importance of Operating Margin

Details: Operating margin is a key indicator of a company's pricing strategy, operating efficiency, and profitability. Higher margins generally indicate better financial health.

4. Using the Calculator

Tips: Enter the operating profit (EBIT) and total revenue in dollars. Revenue must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good operating margin?
A: This varies by industry, but generally 15% or higher is considered good, while below 10% may indicate problems.

Q2: How is operating profit different from net profit?
A: Operating profit excludes interest and taxes, while net profit includes all expenses.

Q3: Can operating margin be negative?
A: Yes, if operating expenses exceed revenue, indicating the company is losing money on operations.

Q4: Why use operating margin instead of gross margin?
A: Operating margin includes all operating expenses (not just COGS), giving a more complete picture of operational efficiency.

Q5: How often should operating margin be calculated?
A: Typically calculated quarterly with financial statements, but can be done monthly for internal tracking.