1. What is Operating Profit Margin?

Operating Profit Margin is a profitability ratio that shows what percentage of revenue is left after paying for variable costs of production (like wages and raw materials). It's a key indicator of a company's operational efficiency and pricing strategy.

2. How Does the Calculator Work?

The calculator uses the Operating Margin formula:

Where:

• Operating Profit — Earnings before interest and taxes (EBIT)
• Revenue — Total sales or income

Explanation: The ratio shows what proportion of revenue is converted to operating profit, expressed as a percentage.

3. Importance of Operating Margin

Details: Operating margin is crucial for comparing companies in the same industry, assessing operational efficiency over time, and identifying pricing or cost control issues.

4. Using the Calculator

Tips: Enter operating profit and revenue in dollars. Both values must be valid (profit ≥ 0, revenue > 0). The result shows what percentage of revenue remains as operating profit.

5. Frequently Asked Questions (FAQ)

Q1: What's a good operating margin?
A: Varies by industry, but generally 15%+ is good, 10% is average, and below 5% may indicate problems.

Q2: How does operating margin differ from gross margin?
A: Gross margin only considers COGS, while operating margin includes all operating expenses (SG&A, R&D, etc.).

Q3: Can operating margin be negative?
A: Yes, if operating expenses exceed gross profit, indicating the core business is losing money.

Q4: Why compare companies using operating margin?
A: It eliminates effects of financing and tax differences, focusing purely on operational performance.

Q5: How often should operating margin be calculated?
A: Typically quarterly with financial statements, but can be calculated monthly for internal tracking.