Operating Profit Margin
A printable cheatsheet with calculations
Instead of calculating each ratio individually
Let our ratio tool instantly calculate your ratios. Input your financial data once and get multiple results.
Operating Profit Margin
Operating Profit Margin =
AKA: operating income margin, operating profit margin, EBIT margin, and return on sales.
The operating margin is the percentage of profit a company makes on a dollar of sales after accounting for wages, raw materials, and other variable costs but before paying interest or taxes.
Business owners, managers, and others use this ratio to determine a company’s operating profit and as an indicator of management’s abilities. The ratio is also used to determine if fixed costs are too high for the production volume.
Note: expanded calculation
Gross profit minus operating expenses, divided by sales revenue, multiplied by 100% to express as a percentage.
At the end of the period, M&M Company calculated its operating profit to be $72,000, recognizing a $300,000 sale revenue. M&M Company had an operating margin ratio of 0.24 or 24% in this case.
For every dollar of revenue, only 24 cents remain after the operating expenses have been paid. The 76-cent balance covers variable costs, while all other non-operating or fixed costs are paid with the 24 cents left.
BENCHMARK: PG, HA, ROT
A healthy operating margin is positive; if it’s 0, the company is breaking even. If it’s a negative number, the company operates at a loss.
When evaluating a company’s operating margin, be aware that the margin depends on what sector the company is in and macro trends affecting margins. Ideally, most companies want an operating margin of 15% or more. A 10% margin is considered average. But, generally speaking, a high operating margin indicates that a company is well-managed and is less risky than other companies with lower operating margins.
Operating Profit Margin:
ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark
DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.