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Operating Margin Ratio Formula:
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The Operating Margin Ratio (OMR) is a profitability ratio that measures what percentage of a company's revenue is left over after paying for variable costs of production. It shows how efficiently a company is managing its operations and generating profits from its core business activities.
The calculator uses the Operating Margin Ratio formula:
Where:
Explanation: The ratio expresses operating income as a percentage of revenue, indicating how much profit is made from each dollar of sales after accounting for operating expenses.
Details: Operating margin is a key indicator of a company's operational efficiency and pricing strategy. It helps investors and analysts assess how well a company is controlling its costs and generating profits from its core business operations.
Tips: Enter operating income and revenue in the same currency units. Both values must be positive, with revenue greater than zero for accurate calculation.
Q1: What is a good operating margin ratio?
A: Generally, higher is better. A ratio above 15% is considered good, but this varies by industry. Compare with industry averages for meaningful analysis.
Q2: How does operating margin differ from gross margin?
A: Gross margin only considers cost of goods sold, while operating margin includes all operating expenses like salaries, rent, and marketing costs.
Q3: Can operating margin be negative?
A: Yes, if operating expenses exceed revenue, the operating margin will be negative, indicating the company is losing money from its core operations.
Q4: Why is operating margin important for investors?
A: It shows a company's operational efficiency and ability to generate profits, which is crucial for long-term sustainability and growth potential.
Q5: How often should operating margin be calculated?
A: Typically calculated quarterly and annually as part of financial statement analysis to track performance trends over time.