Operating margin is the share of revenue left after all the costs of running the business — not just the direct cost of the product, but salaries, marketing, rent, and R&D. The formula is operating income ÷ revenue. It measures how profitable operations are before financing and tax effects.
Operating margin is the middle of the three profitability layers. Above it, gross margin subtracts only the direct cost of the product. Below it, net margin also subtracts interest and taxes. Operating margin is often the most revealing of the three, because it captures how well management controls the whole cost of running the business while stripping out one-off financing and tax items.
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A rising operating margin as revenue grows is a sign of operating leverage — the company gets more efficient as it scales, keeping more of each new sales dollar. A falling one, even while sales rise, warns that costs are growing faster than revenue. Judge it against the company's own history and its sector peers, never the whole market.
Operating margin measures profit from running the core business, before interest and taxes. Net margin subtracts those too. Operating margin often shows management efficiency more clearly by excluding financing and tax noise.
As revenue grows, a rising operating margin signals operating leverage — the company keeps more of each new sales dollar as it scales. A falling one, even with growing sales, warns costs are outrunning revenue.
It's structural to the industry — there is no universal number. Compare against sector peers and the company's own history.
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Educational research only — not investment advice.