What does Operating Margin measure?

Operating Margin is a financial metric that indicates how much profit a company makes from its operations for every dollar of revenue. It is calculated by taking the operating income (or operating profit) and dividing it by total revenue. This metric focuses specifically on the profit generated from the core business operations, excluding non-operational factors such as taxes or interest expenses.

When operating expenses are subtracted from gross profit, the result is operating income. The operating margin reflects the efficiency of the company in managing its operating expenses relative to its revenue generation. A higher operating margin indicates greater efficiency and profitability from core business activities, while a lower margin may highlight challenges in operations or cost management.

Understanding the operating margin is crucial for assessing a company's operational efficiency, making it a vital measure for investors and analysts when evaluating performance.