Operating margin is operating income divided by revenue — gross margin minus operating expenses (sales, marketing, R&D, G&A) before interest and taxes. Measures profitability from core business operations. A company with $10M revenue, $4M COGS, $3M operating expenses has $3M operating income = 30% operating margin. Software companies often achieve 30-40% operating margins at scale; capital-intensive businesses (airlines, retailers) run 5-15%. Watch the trend: companies expanding operating margins are typically gaining scale advantages; declining margins signal cost pressures, competitive intensity, or undisciplined spending. Operating margin excludes financing (interest) and tax effects for cleaner business comparison.
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Operating Margin
August 22, 2026 · Aditya Gupta
Accounting
Related terms
Accounts Payable
Accounts Payable (A/P) is money a company owes to suppliers for goods or services received but not yet…
Accounts Receivable
Accounts Receivable (A/R) is money owed to a company by customers for goods or services delivered on credit.…
Accrual Accounting
Accrual accounting recognizes revenues when earned (regardless of cash receipt) and expenses when incurred (regardless of cash payment)…
Accrued Expense
An accrued expense is a cost recognized in the income statement before cash is paid — recorded as…
Amortization
Amortization is the systematic allocation of intangible asset cost over its useful life — analogous to depreciation but…
Audit
An audit is an independent examination of a company's financial records, internal controls, and statements — typically conducted…
