What it is
Operating margin is a key profitability metric calculated by dividing operating income by total revenue. Operating income is a company's gross profit minus its operating expenses, such as selling, general, and administrative (SG&A) costs. This margin indicates how efficiently a company is managing its core business operations and generating profit from its sales, before accounting for financial costs like interest and taxes.
Analysts and investors closely monitor operating margin during earnings season, as it reflects a company's operational efficiency and cost control. A rising operating margin suggests effective management, potentially leading to increased investor confidence and a higher stock price. A declining margin, however, can indicate rising operational costs, inefficiencies, or pricing pressure, often prompting concerns about future profitability and stock performance.
Why it matters
Operating margin shows how profitable a company's core business is. It helps you assess management's efficiency in controlling costs.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice