Operating margin
What is operating margin?
Operating margin is operating profit divided by revenue, showing how much of each sales dollar remains after running the core business. It is a measure of operating efficiency, before interest and taxes.
Operating margin = Operating profit ÷ Revenue
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- Suggested Investments Research Team
- Content type
- Reference definition
- Published
- 2026-09-13
- Last reviewed
- 2026-09-13
What sits above and below the line
Operating profit includes the cost of goods sold and operating expenses like salaries, marketing and research, but excludes interest on debt and taxes. That makes it useful for comparing operational efficiency separately from how a company is financed or taxed.
The trend matters more than a single figure
A margin that is steadily rising suggests pricing power or genuine cost discipline. A margin propped up by a one-off cost cut can reverse the following year, so a single period's reading deserves scepticism.
Cross-industry comparisons mislead
A software company and a grocery retailer have structurally different cost bases. Comparing their operating margins directly tells you about the industries, not about which is the better-run business.
A worked example
A company with $20bn revenue and $3bn operating profit has a 15% operating margin. If that rises to 17% the following year on similar revenue, the improvement came from cost or pricing, not from selling more.
The mistake people make
Comparing operating margins across industries without adjusting for how capital- or labour-intensive each business is.
How we use it
Operating margin trend, measured over multiple periods, is one input to Fundamental Momentum, which is 20% of the Suggested Investment Score.
Related terms
Sources and methodology
- EDGAR full-text and structured filing data — U.S. Securities and Exchange CommissionPrimary source
- Intelligent Accumulation methodology — Suggested InvestmentsPrimary source
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Educational information only. Nothing here is a recommendation to buy or sell any investment, and no research measurement removes the risk of loss.