Operating margin Definition
Calculated by deducting operating expenses (e.g. cost of goods and services, sales and marketing, general and administrative, and depreciation and amortization) from total revenues and dividing the result by total revenues. It is an important measurement of management’s efficiency, and also the profitability and performance of a company. A company having a higher operating margin on average than its industry competitor’s, tends to have better gross margins and lower fixed costs, thereby giving management more flexibility in influencing prices. Also known as Operating profit margin or Net profit margin. Calculated:
Operating margin = Operating income / Total revenue