Operating Margin (TTM)

Definition

Operating margin measures the proportion of revenue left over after paying operating costs. It is an important indicator of efficiency and profitability.

High operating margins, or increasing margins over time, demonstrate management's effectiveness, whereas declining operating margins can point out weaknesses in company growth. Low operating margins may also indicate where potential cost controls could be implemented.

An operating margin of .15 indicates that for each dollar of revenue that comes in, 15 cents will drive to the operating income. Operating margin thus allows predictions of future operating profits based on revenue growth.

Formula

Operating Margin (TTM) = TTM Operating Income / TTM Net Sales

Operating Income takes into account:
- Revenue
- COGS
- D&A
- Operating Interest Expense
- Operating Expenses (R&D, SG&A, Rent Expense, Pension and Retirement Expense)

It does not include:
- Non-Operating Interest Expense
- Asset Writedowns or Impairments
- Restructuring Charges
- M&A related gains/losses
- Gains/losses from the sale of assets (unless those are core business functions)
- Tax Expenses