How high is my operating margin?
Enter operating income and net revenue from an income statement. Or enter net revenue, the cost of sales and the operating expenses, and the calculator works out operating income first.
- Operating margin
- 35.83%
Operating income of $43,000.00 on net revenue of $120,000.00 gives an operating margin of 35.83%.
- Operating income
- $43,000.00
Operating margin: 35.83%. Operating income of $43,000.00 on net revenue of $120,000.00 gives an operating margin of 35.83%.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes operating margin, operating income as a percent of net revenue, from operating income or from revenue, cost of sales and operating expenses.
Example with the default inputs (Start from Operating income, Net revenue $120,000.00, Operating income $43,000.00): Operating income of $43,000.00 on net revenue of $120,000.00 gives an operating margin of 35.83%.
Method: Operating margin = operating income ÷ net revenue × 100. From revenue and costs: gross profit = net revenue − cost of sales, and operating income = gross profit − operating expenses.
- Operating income is before interest and income tax, from the same income statement and period as the revenue.
- Net revenue is after returns, allowances and discounts.
- Arithmetic is exact on the typed decimals; the margin shows to 2 decimals and money to the cent, halves up.
Worked examples
Each example is checked against the calculator on every build.
- Start from Operating income, Net revenue $120,000.00, Operating income $43,000.00 gives Operating margin 35.833333%, Operating income $43,000.00.Source: U.S. Securities and Exchange Commission, Beginners’ Guide to Financial Statements (Operating Margin = Income from Operations ÷ Net Revenues). https://www.sec.gov/about/reports-publications/beginners-guide-financial-statements; OpenStax, Principles of Finance, 5.1 The Income Statement (Clear Lake Sporting Goods: net sales $120,000 and $100,000, cost of goods sold $60,000 and $50,000, operating income $43,000 and $38,000). https://openstax.org/books/principles-finance/pages/5-1-the-income-statement: 43,000 ÷ 120,000 × 100 = 35.83%
- Start from Revenue and costs, Net revenue $120,000.00, Cost of sales $60,000.00, Operating expenses $17,000.00 gives Operating margin 35.833333%, Operating income $43,000.00, Gross profit $60,000.00.Source: OpenStax, Principles of Finance, 5.1 The Income Statement (Clear Lake Sporting Goods: net sales $120,000 and $100,000, cost of goods sold $60,000 and $50,000, operating income $43,000 and $38,000). https://openstax.org/books/principles-finance/pages/5-1-the-income-statement: 120,000 − 60,000 = 60,000 gross profit
- Start from Operating income, Net revenue $100,000.00, Operating income $38,000.00 gives Operating margin 38%.Source: U.S. Securities and Exchange Commission, Beginners’ Guide to Financial Statements (Operating Margin = Income from Operations ÷ Net Revenues). https://www.sec.gov/about/reports-publications/beginners-guide-financial-statements; OpenStax, Principles of Finance, 5.1 The Income Statement (Clear Lake Sporting Goods: net sales $120,000 and $100,000, cost of goods sold $60,000 and $50,000, operating income $43,000 and $38,000). https://openstax.org/books/principles-finance/pages/5-1-the-income-statement: 38,000 ÷ 100,000 × 100 = 38%
- Start from Revenue and costs, Net revenue $80,000.00, Cost of sales $50,000.00, Operating expenses $36,000.00 gives Operating margin -7.5%, Operating income -$6,000.00, Gross profit $30,000.00.
- Start from Operating income, Net revenue $9,876.54, Operating income $1,234.56 gives Operating margin 12.499924%.
How it works
- Operating margin = operating income ÷ net revenue × 100
When you start from revenue and costs, the calculator works out operating income first:
- Gross profit = net revenue − cost of sales
- Operating income = gross profit − operating expenses
Rules:
- Net revenue must be more than $0. Operating income may be negative (an operating loss). Cost of sales and operating expenses are $0 or more.
- Each amount is at most $1 quadrillion in size. A margin too large to show as a number gives no answer. So does a margin that is not 0 but too small to show as a number.
- The arithmetic is exact on the decimals you type. The margin shows to 2 decimals and money to the cent, with halves rounded up (away from 0).
- Gross profit shows only when you start from revenue and costs.
Assumptions
- Operating income (also called income from operations or operating profit) is before interest and income tax.
- Net revenue is sales after returns, allowances and discounts, for the same period as the costs.
Worked examples by hand
Clear Lake Sporting Goods, current year. Operating income $43,000 on net sales of $120,000: 43,000 ÷ 120,000 × 100 = 35.83%.
The same year from revenue and costs. Gross profit = 120,000 − 60,000 = $60,000. Operating income = 60,000 − 17,000 = $43,000. Operating margin = 35.83%.
Clear Lake Sporting Goods, prior year. 38,000 ÷ 100,000 × 100 = 38%.
An operating loss. Net revenue $80,000, cost of sales $50,000, operating expenses $36,000. Gross profit = $30,000. Operating income = 30,000 − 36,000 = −$6,000. Operating margin = −6,000 ÷ 80,000 × 100 = −7.5%.
Amounts with cents. Operating income $1,234.56 on net revenue of $9,876.54: 1,234.56 ÷ 9,876.54 × 100 = 12.49992…%, shown as 12.5%.
Other questions people ask
What is operating margin?
Operating margin is operating income (income from operations) as a percent of net revenue. It shows how much of each dollar of sales is left after the costs of running the business, before interest and income tax.
How do I calculate operating margin?
Divide operating income by net revenue and multiply by 100. Clear Lake Sporting Goods had operating income of $43,000 on net sales of $120,000, so its operating margin was 43,000 ÷ 120,000 × 100 = 35.83%.
How is operating margin different from profit margin?
Operating margin uses operating income, before interest and income tax. Profit margin uses net income, after interest and tax. Clear Lake's net income of $35,000 gives a profit margin of 29.17%, below its 35.83% operating margin.
How is operating margin different from gross margin?
Gross margin takes off only the cost of sales. Operating margin also takes off the operating expenses, such as salaries, rent, marketing and depreciation. Clear Lake's gross profit was $60,000, a gross margin of 50%.
What is a good operating margin?
It depends on the industry, so compare a company with its own past years and with similar companies. The SEC's guide says desirable ratios vary by industry. A rising operating margin means each dollar of sales turns into more operating income.
Can operating margin be negative?
Yes. When the cost of sales and operating expenses are more than revenue, operating income is a loss and the margin is negative. Net revenue of $80,000 with $86,000 of costs gives an operating margin of −7.5%.