Operating Margin (aka ‘operating profit margin’) is
operating income (EBIT) divided by gross sales. Operating margin gives analysts
an idea of how much a company makes (before interest and taxes) on each dollar
of sales.
When looking at operating margin to determine the quality of
a company, it is best to look at the change in operating margin over time and
to compare the company's yearly or quarterly figures to those of its
competitors. This will show whether your company is (1) getting more – or less –
operationally efficient over time and (2) more or less efficient than its
competitors (or other benchmarks). And whether you need to take corrective
action – and which one.
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