What Is The Operating Margin and What Does It Tell Us?
The operating margin is calculated by taking operating income (EBIT) as a percentage of revenue. It tells investors how much of a company’s revenue ends up becoming income before taxes and interest ad therefore how efficient a company's business model is. Generally, the higher this percentage is, the better.
For example, if a company earned $100 in revenue, but spent $60 to produce the goods sold and $30 on operating expenses, the operating income would be $10 ($100 - ($60 + $30) = $10). Furthermore the operating margin would be 10% ($10 / $100 is 0.1 taken as a percent is 10%).
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Published: 6/03/2021
