Operating Profit Margin Ratio Example
Net Profit Margin
Operating Income (EBIT)
Gross Profit Margin Ratio Analysis
Operating Profit Margin Ratio Definition
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 expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations. Phrased more simply, 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 operating margin, operating income margin, operating profit margin or return on sales (ROS).
Operating Profit Margin Formula
The operating profit margin ratio formula is calculated simply using:
Operating profit margin = Operating income ÷ Total revenue
Or = EBIT
÷ Total revenue
Operating Profit Margin Calculation
Operating profit margin calculations are easily performed, including the example below.
Operating Income = gross profit
– operating expenses
Example: a company has $1,000,000 in sales; $500,000 in cost of goods sold; and $225,000 in operating costs. Operating profit margin = (1,000,000 - 500,000 - 225,000)= $275,000 / 1,000,000 = 27.5%
This means that a company makes $0.275 before interest and taxes for every dollar of sales.
For statistical information about industry financial ratios, please go to the following websites: www.bizstats.com