what is operating margin 
the operating margin measures how much profit a company makes on a dollar of sales after paying for variable costs of production such as wages and raw materials but before paying interest or tax it is calculated by dividing a company s operating income by its net sales higher ratios are generally better illustrating the company is efficient in its operations and is good at turning sales into profits investopedia julie bangunderstanding the operating margina company s operating margin sometimes referred to as return on sales ros is a good indicator of how well it is being managed and how efficient it is at generating profits from sales it shows the proportion of revenues that are available to cover non operating costs such as paying interest which is why investors and lenders pay close attention to it highly variable operating margins are a prime indicator of business risk by the same token looking at a company s past operating margins is a good way to gauge whether a company s performance has been getting better the operating margin can improve through better management controls more efficient use of resources improved pricing and more effective marketing in its essence the operating margin is how much profit a company makes from its core business in relation to its total revenues this allows investors to see if a company is generating income primarily from its core operations or from other means such as investing calculating the operating marginthe formula for operating margin is operating margin operating earnings revenue begin aligned text operating margin frac text operating earnings text revenue end aligned operating margin revenueoperating earnings 