Operating Margin

A profitability ratio that measures what percentage of revenue remains after paying for variable costs of production -- cost of goods sold, wages, and raw materials -- but before interest and taxes. It is calculated by dividing operating income by revenue. Operating margin reveals how efficiently a company runs its core business. Software companies routinely post operating margins above 30%, while grocery chains operate on razor-thin margins below 5%, which is why comparing margins across industries rather than in absolute terms is essential.