SteadySharesSteadyShares
Glossary
Profit & cash

Operating margin

Profit from the core business, as a share of sales, before interest and tax.

This is gross margin after the cost of actually running the company: salaries, marketing, research, rent. It shows whether the business converts its pricing power into genuine operating efficiency, or spends it all on overhead.

It is the best single margin for comparing operational quality between companies in the same industry, because it is not distorted by how they are financed or where they pay tax.

The formula
Operating margin = Operating income ÷ Revenue
Figure

The divergence that precedes most disasters

Y1Y2Y3Y4Y5Reported profitOperating cash

Reported profit climbing while the cash it supposedly generated goes nowhere. Either customers are not paying, or the sales were never really made.

Why it matters

Rising operating margin as revenue grows is the fingerprint of genuine operating leverage.

The mistake everyone makes

Ignoring one-off charges that management has excluded to flatter it. Read what was adjusted out.

Related terms

Gross margin
What is left of each pound of sales after the direct cost of making the thing.
Net margin
The bottom line, as a percentage of sales.
EBITDA
Profit before the four things that make companies look different from one another.

See Operating margin on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

Open SteadyShares