Operating Margin
Operating profit as a percentage of revenue, showing what the core business keeps before interest and tax.
Formula
Operating Margin = Operating Profit (EBIT) / Revenue x 100
Unit
%
In depth
Operating margin is the fairest single margin for comparing businesses, because it comes after every cost of running the company but before the financing and tax choices that differ between them. Rising operating margin during revenue growth is evidence of operating leverage working; falling margin during growth suggests the company is buying revenue. It is more conservative than EBITDA margin because it deducts depreciation, which matters enormously for asset-heavy businesses. Comparing one company's operating margin with another's EBITDA margin is a common and material error.
Worked example
Operating profit ₹160 crore on revenue of ₹1,000 crore gives an operating margin of 16%, against an EBITDA margin of 220 / 1,000 = 22%. The 6-point gap is depreciation, and it is a real cost of the assets in use.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Operating Margin” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.