Operating Margin
EBIT Margin
Operating margin is the profit from running the business, before interest and tax, as a percentage of sales. It shows how efficiently the company converts revenue into profit from operations alone.
Formula
Operating Margin
Operating Margin (%) = Operating Profit (EBIT) ÷ Sales × 100
Benchmark: Compare within the sector and across five years; watch the gap to gross margin
Reading the number
Between gross margin and operating margin sit the running costs: salaries, rent, advertising, distribution, and depreciation. The gap between the two tells you how expensive the business is to operate. A wide gap with a healthy gross margin means heavy overheads, which is normal for a consumer brand that advertises constantly and unusual for a commodity producer.
Operating profit is also the numerator in ROCE and in interest coverage, so a falling operating margin quietly weakens both of those ratios at once.
Indian example
Related ratios
Glossary terms
Go deeper
From the research
How The Valuation Node Approaches Research
The research method behind The Valuation Node, how assumptions are stated, how sources are chosen, and how uncertainty is disclosed in every published analysis.
ValuationWhat Three Years of a Cash Flow Statement Reveals That One Year Hides
A single year of cash flow is a snapshot. Three years is a story. Learn what the trend reveals about earnings quality, funding, and sustainability.
ValuationComparing Two Companies on ROE, and Why the Higher One Is Not Always Better
Two companies can report the same ROE for very different reasons. DuPont analysis shows why an ROE built on leverage is not the same as one built on quality.