Operating margin
Also called EBIT margin.
Profit from running the business, before interest and tax, as a share of revenue.
Operating margin = operating income / revenueWhat it means
Operating margin is what the business earns from its actual operations, after everything it takes to run them and before the effects of how it is financed or where it is taxed. That makes it the best margin for comparing two companies that carry different amounts of debt.
Operating income is also what people usually mean by EBIT, earnings before interest and tax. The two are near enough the same figure that the terms get used interchangeably.
Worked example
Revenue of $1,000m and operating income of $180m.
- 1180 / 1,000 = 0.18.
An 18% operating margin.
Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.
How investors read it
- The trend matters more than the level. A margin widening over five years is a business getting more efficient as it grows.
- Compare against direct competitors. A margin well above the industry either reflects a real advantage or an accounting difference worth understanding.
- A margin that expands while revenue grows is the combination worth paying for.
Where it misleads
- One-off charges such as restructuring or impairments distort a single year in both directions.
- It excludes interest, so a heavily indebted company can show a healthy operating margin and still have nothing left for shareholders.
- Stock-based compensation is inside operating expenses, so companies paying a lot of it carry a genuine cost here that their cash flow statement will add back.
How Materiality uses it
Computed as a profitability ratio in the Financials tab, and its multi-year change is one of the four Growth metrics in the scorecard. The trend is used rather than the level, because the level is not comparable across industries.
The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.
Related metrics
Gross margin
What share of revenue survives the direct cost of producing it.
EBITDA
Operating profit with depreciation and amortisation added back.
Free cash flow
Operating cash flow less capital expenditure: what the business actually generated for its owners.
Stock-based compensation
Employees paid in shares rather than cash, and why it complicates every cash flow figure.
A metric on its own is a number without a business attached to it. Materialitycomputes these from a company's own SEC filings, several years of them at once, and explains what the pattern means rather than leaving you to hold fifteen definitions in your head.