Operating Margin
Definition
Operating income as a percentage of revenue, showing how much profit a business makes from its core operations before interest and tax. It isolates operating efficiency from financing and tax effects.
Formula
Operating margin = Operating income ÷ Revenue × 100
Related Terms in Financial Analysis
Gross Profit Margin
Gross profit as a percentage of revenue, measuring how much is left after the direct cost of goods sold to cover operating expenses and profit. It reflects pricing power and production efficiency.
Return on Equity (ROE)
Net profit as a percentage of shareholders' equity, showing how much profit a business generates from the owners' invested capital. A higher ROE indicates more efficient use of equity, though leverage can inflate it.
Return on Assets (ROA)
Net profit as a percentage of total assets, measuring how efficiently a business uses everything it owns to generate profit. It is useful for comparing asset-intensive businesses.
Return on Capital Employed (ROCE)
Operating profit as a percentage of capital employed (equity plus long-term debt), showing how well a business turns its total long-term funding into operating profit. It is widely used to compare capital efficiency.
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