Operating Margin
Shows the percentage of revenue remaining after core operating expenses but before interest and taxes.
Formula
Operating Margin = Operating Income / Revenue x 100%
Worked example$1.8 billion of operating income on $10 billion of revenue produces an 18% operating margin.
Calculation steps
- Find operating income: $1.8 billion.
- Use revenue from the same period: $10 billion.
- Divide and multiply by 100 to get 18%.
How to interpret it
Stable or expanding operating margin often indicates operating leverage and cost discipline.
Industry context
Asset-light businesses generally have different margin potential from retailers, airlines, manufacturers, and banks.
Common mistakes
- Keep adjusted and reported operating income separate.
- Use matching periods.
- Check whether restructuring charges or stock compensation were excluded.