Operating Margin

Operating Margin is the percentage of revenue that a company generates that can be used to pay the company's investors (both equity investors and debt investors) and the tax man.

Operating Margin

Operating Margin is the percentage of revenue that a company generates that can be used to pay the company's investors (both equity investors and debt investors) and the tax man.

 


Calculation of Operating Margin

Operating margin (operating income margin, return on sales) is the ratio of operating income divided by net sales (revenue).

Operating Margin formula:  Operating Income / Net Sales

Interpretation of Operating Margin

Operational cash flow dictates how well a company can satisfy the claims of creditors and create value for common shareholders. In order to assess this value creation, investors do well by analyzing a company's operating margin.



Operating margin is a key measure in analyzing a stock's value. All other things being equal, the higher the operating margin, the better. Using a percentage figure is also very useful for comparing companies  or analyzing the operating results of one company over various revenue scenarios.

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