1. What is Operating Margin?

Operating Margin is a profitability ratio that shows what percentage of revenue is left after paying for variable costs of production like wages, raw materials, etc. It's a key indicator of a company's pricing strategy and operating efficiency.

2. How Does the Calculator Work?

The calculator uses the Operating Margin formula:

Where:

• \( \text{Revenue} \) — Total income from sales
• \( \text{Operating Expenses} \) — Costs associated with normal business operations

Explanation: The formula calculates what proportion of revenue remains after covering operating expenses, expressed as a percentage.

3. Importance of Operating Margin

Details: Operating margin is crucial for assessing a company's operational efficiency and pricing strategy. It helps compare companies within the same industry and track performance over time.

4. Using the Calculator

Tips: Enter revenue and operating expenses in dollars. Both values must be positive numbers, with revenue greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good operating margin?
A: This varies by industry. Generally, 15% or higher is considered good, but some industries (like software) regularly see much higher margins.

Q2: How is operating margin different from profit margin?
A: Operating margin considers only operating expenses, while profit margin includes all expenses (including taxes and interest).

Q3: Can operating margin be negative?
A: Yes, if operating expenses exceed revenue. This indicates the company is losing money on its core operations.

Q4: Why would operating margin decrease?
A: Decreases could be due to rising costs, price competition, or operational inefficiencies.

Q5: How often should operating margin be calculated?
A: Typically calculated quarterly with financial statements, but can be calculated monthly for internal tracking.