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, before interest and taxes.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( OM \) — Operating margin (percentage)
• \( EBIT \) — Earnings Before Interest and Taxes (currency)
• \( Revenue \) — Total revenue (currency)

Explanation: EBIT is divided by total revenue to get the operating profit ratio, then multiplied by 100 to convert to percentage.

3. Importance of Operating Margin

Details: This metric is crucial for comparing profitability between companies and industries, assessing operational efficiency, and tracking performance over time.

4. Using the Calculator

Tips: Enter EBIT and revenue amounts in the same currency. Revenue must be greater than 0.

5. Frequently Asked Questions (FAQ)

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

Q2: How is EBIT different from net income?
A: EBIT excludes interest and taxes, focusing purely on operational profitability, while net income includes all expenses.

Q3: Can operating margin be negative?
A: Yes, negative operating margin means a company is losing money on its core operations.

Q4: How often should operating margin be calculated?
A: Typically calculated quarterly with financial statements, but can be done monthly for internal tracking.

Q5: What affects operating margin?
A: Pricing strategy, cost control, operational efficiency, and sales volume all impact operating margin.