How much does the business itself earn, before loans and tax get their share?
Operating Profit Margin
Lesson 2 of 11 · Profit
Operating margin is profit from the core business as a share of sales, before interest and tax are paid.
In everyday life
Two samosa stalls sell the same and spend the same on ingredients. One borrowed money to start, the other didn't. Their operating margin is the same, because it ignores how the stall was paid for.
How it's worked out
Example: Sunrise Tea, a made-up company that sells packaged tea across India.
In words: ₹20 of every ₹100 of sales is profit from the business.
Try it yourself
Move the sliders and watch the answer, the picture and the verdict change together.
₹20 of every ₹100 of sales is profit from the business.
- Operating profit
- The rest
Each dot is 1 of every 100 in “sales”.
Rough guide
- Thin
- Decent
- Strong
What's a good number?
- Thin
Up to 10%
- Decent
10% to 20%
- Strong
Above 20%
Because it leaves out loans and tax, this is the fairest way to compare how well two businesses are run.
Key number in the sector guides for IT services, Pharma and FMCG.
How to read it
Good signs
- Stays steady even when raw-material prices jump: a sign of pricing power.
- Rises as the company grows (costs are spread over more sales).
Watch out for
- Big swings from year to year mean the business depends on things it can't control, like crop or oil prices.
Read it with
For learning only. Example companies are made up, and the rough guides are rules of thumb, not targets. Nothing here is advice to buy or sell any stock.