Operating Margin

Valuation & Fundamentals

Operating income, what remains after operating expenses such as research and development, marketing and general administration are subtracted from gross profit, as a percentage of revenue.

Because interest and taxes have not yet been deducted, it shows how efficiently the core business runs. If the margin widens while revenue grows, costs are growing more slowly than sales.

Example

01Revenue$100 Million
02Gross Profit$40 Million
03Subtract Operating Expenses-$25 Million
04Operating Income$15 Million

15%

Operating Margin (15 / 100)

With revenue of $100 million, gross profit of $40 million and operating expenses of $25 million, operating income is $15 million and the operating margin is 15%.

Related Terms

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