Operating Margin

Operating margin means operating income as a percentage of revenue. In simple terms, operating margin shows how much operating profit a company keeps from each dollar of sales. Operating margin is important because it helps investors judge business efficiency and profitability. A rising operating margin may suggest better cost control, pricing power, or scale benefits. For example, if a company has $1 billion in revenue and $200 million in operating income, its operating margin is 20%. Operating margin is not the same as gross margin. Operating margin includes operating expenses, while gross margin only subtracts direct costs.