What Is Operating Margin?

Operating Margin is an essential profitability ratio that measures the percentage of revenue a company retains after paying for all operating costs. These operating costs include Cost of Goods Sold (COGS) as well as Selling, General & Administrative (SG&A) expenses, Research & Development (R&D), and other overhead costs. It shows how much profit is generated per dollar of sales before taxes and financing costs are subtracted.

Operating Margin Formula

Operating margin is calculated using the following formula:

Operating Margin = (Operating Income ÷ Revenue) × 100

Operating Income (also called EBIT - Earnings Before Interest and Taxes) is: Revenue − COGS − Operating Expenses (OPEX).