![]() ![]() ![]() This gives investors and creditors a clear indication as to whether a company’s core business is profitable or not, before considering non-operating items. It differs from net income in that it does not include the expenses of taxes and interest. It represents how much a company is making from its core operations, not including other income sources not directly related to its main business activities. Operating income is the profit of a business after all operating expenses are deducted from sales receipts or revenue. As a result, an operating margin of 36% was generated, or in other words for every dollar in sales achieved, $0.36 cents is retained as operating profit. Operating income before tax netted to $45 million after deducting all $80 million in operating expenses for the year. What is the formula for Operating margin? Operating Margin = Operating Income / Revenue X 100ĭT Clinton Manufacturing company reported on its 2015 annual income statement a total of $125 million in sales revenue. 2018 starts with Revenue of $5 million, less COGS of $3.25 million, resulting in Gross Profit of $1.75 million.įrom there, another $1.3 million of Selling General & Administrative SG&A expenses are deducted, to arrive at Operating Income of $437,500.īy taking $437,500 and dividing it by $5.0 million you arrive at the operating margin of 8.8%. In the above example, you can clearly see how to arrive at the 2018 operating margin for this company. Also referred to as return on sales, the operating income indicates how much of the generated sales is left when all operating expenses are paid off. Operating margin is a profitability ratio measuring revenue after covering operating and non-operating expenses of a business. Operating margin is equal to operating income divided by revenue. ![]()
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