Operating Margin
Analyzing FirmsSponsored Content

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Operating Margin requires subtracting all of the company or firm’s operating costs and expenses from Gross Profit. Afterward, divide Operating Profit by Sales Revenue. Multiplying this number by 100 will express the Ratio in a Percentage.

Operating Margin allows companies and firms to be compared after operating expenses and costs of goods or services sold have been subtracted from revenue. The most important thing you should look for is the difference in trends between the Gross Margin Ratio, and the Ratio of Operating Margin. If you see the trend for the Ratio of Gross Margin trending upwards or remaining steady year over year while the Ratio of Operating Margin is decreasing steadily, the company has a problem with their operating expenses. You should investigate why. Dig through the notes within the operating expenses and costs section to discover new programs or policies resulting in increased expenses.
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