What Is Operating Profit Margin?

The operating profit margin is the amount of money left after the company pays all its bills, which is called profit. In accounting, profit can be divided into gross profit (the difference between the amount of goods sold and the cost of goods sold), operating profit (the difference between gross profit and operating expenses), and net profit (operating profit plus non-operating income and expenditure) And income tax). The operating profit margin refers to the percentage of the operating profit from the net sales or the percentage of the invested capital. This percentage can comprehensively reflect the operating efficiency of an enterprise or an industry. Operating profit margins vary widely across industries and between companies in the same industry, and not all companies earn profits every year. In the United States, about 20% of companies have not been able to make a profit or have suffered losses to varying degrees. The method of determining the ideal profit point is to know whether the marginal revenue of the sales of new unit products is greater than the marginal cost of producing the same new unit products. If marginal income is greater than marginal cost, then this new unit should be produced, and production should continue as long as this situation persists. In contrast, if marginal cost exceeds marginal income, output should be reduced. At the point where marginal cost and marginal income are equal, the profit situation is most ideal. ^[1]

Operating margin

Factors affecting operating margin

1. Sales volume;

2. Average selling price of unit products;

3. Unit manufacturing cost;

4. The ability to control management costs;

5. The ability to control marketing expenses.

Operating margin

Operating profit = operating income (main business income + other business income)-operating costs (main business costs + other business costs)-operating taxes and surcharges-management expenses-selling expenses-financial expenses-asset impairment losses + fair value Variable income (negative loss) + investment income (negative loss)

Operating profit margin calculation formula: Operating profit / net operating income

Current ratio calculation formula: current assets / current liabilities

Quick formula calculation formula: (current assets-inventory) / current liabilities

Calculation formula of capital profit rate : operating profit / capital

Current ratio measures how a company's current assets can become cash for repayment before short-term debts mature

Ability to also flow liabilities.

Quick action ratio. Measures the ability of a company's current assets to be used immediately to repay current liabilities.

The inventory turnover rate measures the company's sales capacity and whether the inventory is excessive.

The calculation formula is

Inventory turnover rate = cost of goods sold / average inventory * 100%

Average inventory = (beginning inventory + ending inventory) ÷ 2

Operating profit rate of course reflects profitability, while capital profit rate reflects capital profitability, which is the return on capital