Operating margin
Definition · Level 10 · Valuation
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EBIT ÷ revenue: the share of each sales dollar left after all operating costs, before interest and tax.
Example
Brewline: 160 ÷ 1,000 = 16%.
Where Tradecraft teaches it
Level 10 · Valuation, in the lesson “The income statement: top line to bottom line”: Walk from revenue to net income and read the three margins.
Related terms
- Bottom lineDesk slang for net income: the profit left after all costs, interest and tax.
- COGSCost of goods sold: the direct cost of making what was sold in the period, such as materials, factory labor, freight, or hosting for a software firm.
- EBITEarnings before interest and taxes, also called operating income: revenue minus COGS and operating expenses, before interest and tax.
- Gross margin(Revenue − cost of goods sold) ÷ revenue: the share of each sales dollar left after the direct cost of making or delivering the product.
- Income statementThe report of a period’s revenue, costs and profit (a quarter or a year), written from sales at the top down to net income at the bottom.
- Net incomeProfit left for shareholders after every cost: cost of goods sold, operating expenses, interest and taxes.