Operating Margin Calculator

How it is calculated

Operating margin shows how much of each unit of sales is left as profit from the core business, before interest and income tax. The tool computes margin % = operating income / revenue × 100. Operating income (EBIT) is revenue minus the cost of goods sold and operating expenses such as wages, rent and marketing; revenue is total sales for the same period, in the same currency. Revenue must be greater than zero. Operating income can be negative, which gives a negative margin and means the business loses money on its operations. The tool does not adjust for one-off items, so remove them yourself if you want a recurring margin. Typical margins differ widely by industry, so compare with similar companies, not across sectors.

Common mistakes

• Entering net income instead of operating income; interest and tax would then be mixed into the figure and it is no longer an operating margin.
• Using gross profit, which only subtracts the direct cost of goods and ignores operating expenses, and calling it operating margin.
• Mixing periods, such as a quarter's income with a full year's revenue.
• Confusing margin with markup: margin is divided by revenue, markup by cost, so the same deal gives a smaller margin than markup.
• Leaving a one-time gain or write-off in the operating income, which distorts the margin for that year.