1. What is Operating Margin?

Operating Margin is a profitability ratio that shows what percentage of a company's revenue is left over after paying for variable costs of production like wages and raw materials.

2. How Does the Calculator Work?

The calculator uses the Operating Margin formula:

Where:

• Operating Profit — Earnings before interest and taxes (EBIT)
• Net Sales — Total revenue minus returns, allowances, and discounts

Explanation: The ratio measures how much profit a company makes on each dollar of sales after paying for variable costs but before paying interest or tax.

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 a more profitable company.

4. Using the Calculator

Tips: Enter operating profit and net sales in dollars. Both values must be valid (operating profit ≥ 0, net sales > 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 10% is average.

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

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

Q4: Why compare operating margins across companies?
A: It helps investors compare profitability between companies in the same industry, regardless of capital structure.

Q5: How can a company improve its operating margin?
A: By increasing prices, reducing costs, improving operational efficiency, or selling higher-margin products.