Operating Margin
Operating Margin
Operating income (EBIT) divided by revenue. Captures profitability from core operations after all operating costs but before interest and taxes.
When to use: Use to measure core-business profitability stripped of capital-structure and tax effects. The cleanest comparison metric across firms with different debt levels and tax situations. Year-over-year trend is the highest-information signal.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| OperatingMargin | Operating Margin | Operating income (EBIT) divided by revenue | % |
| EBIT | EBIT | Earnings before interest and taxes (operating income) | $ |
| Sales | Annual Sales | Annual revenue (net sales) | $ |
Real-Life Examples
Example 1: Industrial Mid-Cap
EBIT $400M, revenue $2,000M.
Given
Step-by-Step
20% operating margin — strong for an industrial. Compare to peers; persistent above-peer margins signal cost discipline, scale, or operational excellence.
Frequently Asked Questions
No. Restructuring, impairment and other unusual items can affect reported operating income. State and reconcile any adjusted measure separately.
Use operating income and revenue from the same period and reporting basis. EBIT and reported operating income may differ when nonoperating items are included in EBIT.