What Is a Net Operating Ratio?

Net operating margin is the ratio of net profit to operating income. It reflects the ability of a company's operating income to generate net profit. Net operating margin is the ultimate profitability indicator of a company's sales. The higher the ratio, the stronger the company's profitability.

Net operating margin

Calculated as follows:

Net operating margin =

Two ways: one is to expand operating income, and the other is to reduce costs.

This indicator reflects the net profit brought by each yuan of operating income, and represents the level of income from operating income. From the perspective of the net operating margin, the net profit is directly proportional to the net operating margin, while the operating income is inversely related to the net operating margin. While increasing the amount of operating income, the company must obtain more net profit accordingly in order to keep the net operating margin unchanged or increase.