Operating margin

A margin is a profit number expressed as a percentage of revenue. It tells you how many cents of each sales dollar the company keeps at a given point on the income statement.

Operating margin measures what percentage of revenue is left after all the costs of running the business: cost of goods sold, selling, general and administrative expenses, research and development, and depreciation and amortisation. It strips out financing and tax effects, so it shows how profitable the underlying business operation is on its own.

The formula is:

This is often the cleanest single number for comparing two companies in the same industry, because it isolates how well the business itself is run. A higher operating margin usually means a stronger competitive position, better pricing power, or tighter cost control.