Operating Profit Margin is a financial metric that measures the profitability of a company’s core operations, by expressing the operating profit as a percentage of revenue. It is commonly used to measure a company’s efficiency in controlling costs and generating profit from its core operations, and to compare the profitability of different companies or industries. A higher operating profit margin generally indicates that a company is more efficient in controlling costs and generating profits, while a lower operating profit margin may indicate that a company is struggling to generate profits from its core operations.
The formula for calculating Operating Profit Margin is:
Operating Profit Margin = (Operating Profit / Revenue) x 100
- “Operating profit” is the amount of money a company makes from its core operations after deducting operating expenses such as cost of goods sold, selling and administrative expenses, and depreciation.
- “Revenue” is the total amount of money a company earns from the sale of its products or services.
For example, if a company has an operating profit of $1,000,000 and revenue of $10,000,000, the operating profit margin would be 10%.
It’s important to note that Operating Profit Margin can vary depending on the industry and company size. Therefore, it’s important to compare the Operating Profit Margin with industry averages or with the company’s own historical performance. Additionally, it’s important to analyze the Operating Profit Margin in conjunction with other profitability metrics like net profit margin, gross profit margin and return on assets to get a more comprehensive picture of a company’s financial performance.
Track business performance with real time key metrics against targets in one place without the need for multiple dashboards or reports
