Glossary
Operating margin
Operating income divided by revenue: what share of sales remains after the costs of running the business, before interest and tax.
On this page
Operating margin is operating income as a percentage of revenue. It shows how much of each sales dollar is left after paying for the goods sold and the costs of running the company, but before interest and taxes. Because it ignores financing and tax structure, operating margin is a good gauge of how efficient a business is and how much pricing power it has, and it is widely used to compare companies in the same industry.
How it is calculated
Reading the number
Typical operating margins vary enormously by industry, from low single digits for grocers and many distributors to 30% or more for leading software and payment companies. A margin that expands over several years can point to scale, pricing power or cost discipline. A shrinking one can mean rising competition, input costs or heavy investment. Investment can be deliberate: a company spending heavily on research to grow may accept a lower margin today.
Check whether the margin includes one-off charges such as restructuring, and compare like with like: different companies classify some costs above or below the operating line.