Operating margin measures how profitable a company’s main activities are before financing costs and tax. You divide operating profit by revenue and express the result as a percentage. A rising operating margin often means the firm is controlling costs better or earning more on each unit sold.
Key takeaways
- Operating margin ignores interest and tax so you can compare core operations.
- It is useful for comparing companies in the same industry.
- A high margin is not automatically safe if revenue is shrinking or debt is heavy.
- Watch trends over several periods rather than a single quarter in isolation.