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How to calculate operating margin?

Operating margin helps a company understand how much money they make from each dollar of revenue before considering interest or taxes. The formula for calculating operating margin is operating income divided by revenue (or sales).

For example, if the company had net income of of $100,000 after interest of $10,000 and taxes of $5,000, both of those items would be added back to net income to calculate operating income of $115,000. Once you have operating income, you can divide that into sales. So if sales are $200,000, divided the $115,000 by $200,000, and you get an operating margin of 57.5%. That means that for each $1 of revenue earned, the company earns an operating profit of $0.575 cents.


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