The operating profit margin ratio indicates how much profit a company makes after paying for variable costs of production such as wages, raw materials, etc. It is also expressed as a percentage of sales and then shows the efficiency of a company controlling the costs and expenses associated with business operations. Furthermore, it is the return achieved from standard operations and does not include unique or one time transactions. Terms used to describe operating profit margin ratios this include the following:
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For example, a company has $1,000,000 in sales; $500,000 in cost of goods sold; and $225,000 in operating costs. In conclusion, operating profit margin = (1,000,000 – 500,000 – 225,000)= $275,000 / 1,000,000 = 27.5%
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