Financial modelling terms explained

# Operating Margin

The operating margin is a measure of how profitable a company is. It is calculated by dividing a company's operating income by its net sales. Operating income is the amount of money left over after all expenses have been paid.

## What is Operating Margin?

Operating margin is a profitability ratio that measures the percentage of revenue that a company earns from its operations. It is calculated by dividing a company's operating income by its net sales. Operating margin can be used to assess a company's ability to generate profits from its core operations.

## How Do You Calculate Operating Margin?

Operating margin is a measure of a companyâ€™s profitability which takes into account the cost of goods sold and operating expenses. It is calculated by dividing operating income by net sales. Operating margin can be used to compare the profitability of companies in different industries or to track changes in a companyâ€™s profitability over time.

## Why Is it Important to Know Your Operating Margin?

An important metric to know for any business is its operating margin. This measures the percentage of each dollar of revenue that a company retains in earnings, after accounting for the costs of goods sold and other operating expenses. It is a key measure of how efficiently a company is operating, and can provide insights into how profitable a company is and how sustainable its profits are. Operating margin can be compared across industries and companies to get a sense for how a company is performing relative to its peers. In a competitive environment, a high operating margin can be a key competitive advantage.

## What's the Difference Between Operating Margin and Gross Profit?

Operating margin is a measure of a company's profitability calculated by dividing its operating income by its net sales. Gross profit is a measure of a company's profitability calculated by subtracting the cost of goods sold from net sales. In other words, gross profit is the difference between what a company charges for its products and the cost of producing those products.

## What is an Example of an Operating Margin?

An example of an operating margin is a business's net income divided by its net sales. This measures the percentage of each dollar of sales that is profit. Operating margin is used to measure a company's ability to generate income from its operations. It is also used to compare the profitability of companies in the same industry.

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