A profitability ratio that measures operating income as a percentage of revenue, calculated by dividing operating income by total revenue. It shows how much profit a company makes from its core operations before interest and taxes.
'Operating' from Latin 'operari' meaning to work, 'margin' from Latin 'margo' meaning edge. The metric became crucial during the 1920s rise of large corporations as investors needed to assess management's operational efficiency separate from financial and tax considerations.
Operating margin is like the report card for management execution - it strips away everything except how well they run the actual business! A company might have great gross margins but terrible operating margins, revealing that while their product is profitable, they're spending too much on sales, marketing, or administration.
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