GlossaryIntermediate
Operating Margin
Operating income divided by revenue, measuring profitability after operating expenses but before interest and taxes.
Operating margin divides a company's operating income (gross profit minus operating expenses like marketing, R&D, and administrative overhead) by its total revenue, measuring profitability from the company's core business operations, before accounting for interest expense or taxes.
It sits between gross margin and net margin in the standard three-margin comparison, excluding financing and tax effects that can otherwise obscure how profitable the underlying business operations actually are. See Kaavon's dedicated Operating Margin article for the full calculation.
Examples
- Operating margin isolates how profitable a company's core operations are, independent of how much debt it carries or what tax rate it pays.
- A company with a high gross margin but a low operating margin is spending heavily on operating expenses relative to its revenue.