The Operating Profit Margin
is a fairly simple calculation meant to provide a business with an understanding of how much profit is earns relative to the cost of operations. Calculating this metric requires simply dividing the operating profit by the total organization revenue.
|Cost of Goods Sold (COGS)||39023||52654||56710
|Salaries and Benefits||26427|
|Rent and Overhead||10963|
|Depreciation & Amortization||19500||16544||16080
|Operating Profit Margin||6%||27%||27%
Q&A About Operating Profit Margin
What are two ways to express an operating profit margin?
Net Income / Revenue and (Net Income / Revenue) * 100%.
Is there any relationship between gross profits and net income?
Yes, there is positive correlation between gross profits and net income because both are related to business performance .
How does a company calculate its operating profit margin?
By dividing net income by revenue.
Are there any other terms used to describe profitability ?
Yes , Return on Investment (ROI) , Return on Equity (ROE), Earnings per Share( EPS).
What is the definition of operating profit margin?
Operating profit margin is defined as net income divided by revenue.
What is the difference between gross profit and net income?
Gross Profit = Revenue - Cost of Goods Sold; Net Income = Gross Profit + Other Revenues - Expenses - Taxes on Operations - Interest Expense + Depreciation & Amortization Expense + Change in Deferred Tax Liability/Asset + Change in Pension Liability/Asset + Other Non-Operating Items – Changes in Working Capital – Discontinued Operations – Extraordinary Items. The first equation subtracts costs from revenues, while the second adds back certain costs and deductions.
How do companies use their profitability ?
Companies use their profitability to decide whether they should continue with current operations or make changes .
Why would a company want to have a high or low operating profit margin?
A higher operating profit margin indicates that the company has more money left over after paying for expenses, while a lower one means that it has less money left over. This can be useful information when deciding how much to charge for products.