The Operating Margin is defined as a company’s profit after its cost of goods sold (COGS) and operating expenses are subtracted from the revenue generated.
Operating Margin is also known as the Operating profit margin. It represents a relationship between the operating income of a company or EBIT (Earnings before Interest and Taxes) and revenue to estimate the profits before paying off non-operating expenses. High Operating Margin is considered suitable for a business as it means that the business is functioning at an optimum level while utilising its resources efficiently.
It can be calculated using the Sales and operating Income, as:
Operating Margin = Operating Income/Revenue
or
Operating Margin = (Operating Profit/Net Sales) x 100
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