Reading the accounts
Operating margin
Operating income as a percentage of revenue — how much of each sale survives running the business.
How it works
It combines product economics and cost discipline into one figure, which makes it the best single measure of operating quality.
The trend matters more than the level. A margin expanding as revenue grows indicates operating leverage; one contracting suggests growth is being bought.
Formula
Operating margin = operating income ÷ revenue × 100Related terms
- Operating incomeProfit from the core business, before interest and tax.
- Gross marginWhat proportion of revenue is left after the direct cost of producing what was sold.
- Net marginNet income as a percentage of revenue — what proportion of each sale ends up as profit.
- Operating leverageHow much profits amplify revenue changes, because some costs stay fixed as sales move.
More in Reading the accounts
- Organic growth
- Owner earnings
- Return on equity
- Operating expenses
- Return on invested capital
- Operating cash flow
- Revenue
- Off-balance-sheet
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.