Definition – What is Operating Margin?
Operating Margin is a measurement of a firm’s profitability.
Formula – How to calculate Operating Margin
Operating Margin = (Operating Income / Sales Revenue) x 100%
A business has operating income of $3,500 and sales revenue of $18,000.
Operating Margin = ($3,500 / $18,000) x 100% = 0.1944 x 100% = 19.44%
Therefore, this company’s operating margin is 19.44%.
Sources and more resources
- Wikipedia – Operating Margin – Wikipedia’s entry on operating margin. Includes a sample formula and calculation.
- Houston Chronicle – How to calculate operating margin – A short newspaper page on operating margin.
- Accounting Tools – The difference between gross and operating margin – A short explanation of gross vs operating margin.
- The Balance SMB – How to determine operating profit margin ratios – An overview of some operating ratios.
- Investopedia – Operating Margin – An overview of operating margin.