Operating Profit Margin Ratio

See Also:
Operating Profit Margin Ratio Example
Net Profit Margin
Operating Income (EBIT)
Financial Ratios
Gross Profit Margin Ratio Analysis
Interest Expense

Operating Profit Margin Ratio

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:

• Operating margin
• Operating income margin
• Return on sales (ROS)
• Operating profit margin

Operating Profit Margin Formula

In order to calculate the operating profit margin ratio formula, simply use the following formula:

Operating profit margin = Operating income ÷ Total revenue

Or = EBIT ÷ Total revenue

Operating Profit Margin Calculation

The operating profit margin calculations are easily performed, including the following example.

Operating Income = gross profit – operating expenses

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%
In conclusion, this company makes $0.275 before interest and taxes for every dollar of sales.
If you want to learn how to price profitably, then download the free Pricing for Profit Inspection Guide.

Resources

For statistical information about industry financial ratios, please go to the following websites: www.bizstats.com and www.valueline.com.