Operating margin measures what percentage of revenue remains after paying operating expenses, before interest and taxes.
Operating Profit Margin shows how much profit a company makes from its core business operations before accounting for interest and taxes. It focuses purely on operational efficiency by excluding financing decisions and tax strategies, making it excellent for comparing companies with different capital structures or tax situations. High operating margins indicate efficient operations, strong pricing power, and economies of scale.
A company with $10B revenue and $3B operating income has an operating margin of (3 / 10) × 100% = 30%. The company keeps $0.30 from each sales dollar for operating profit.
Operating margin above 25% is excellent, indicating strong operational efficiency, pricing power, and competitive moats. Common in technology and pharmaceutical companies.
Operating margin below 10% suggests tight operations, heavy competition, or high cost structure. Common in retail, transportation, and commodity businesses.
Ideal operating margin varies by industry. SaaS companies may have 20-40% margins, while grocery stores operate at 2-4% margins.
