Operating margin
Operating income as a share of revenue, measuring profit from core operations after operating costs but before interest and tax.
Operating margin is operating income divided by revenue. Operating income is revenue minus cost of revenue and operating expenses such as sales, research and administration. It excludes interest and taxes, so it shows the profitability of the business itself before financing and tax choices.
On our site, operating margin is shown quarterly and compared with the prior year. Check whether a figure is GAAP or adjusted, since adjustments can remove costs that recur.
Traders care because operating margin shows whether growth is turning into profit. Margin expansion with flat revenue is often a sign of cost discipline.
Worked example (illustrative numbers, not real data): revenue is 500 million dollars, gross profit is 225 million and operating expenses are 150 million. Operating income is 75 million, an operating margin of 15 percent. If revenue grows to 550 million with the same 45 percent gross margin and the same 150 million of operating expenses, the operating margin rises to about 18 percent.