Operating Margin is a key financial metric that measures a companyís efficiency in managing its core business operations. It indicates how much profit a company makes from its operations before deducting interest and taxes. This ratio helps investors assess the financial health and operational efficiency of a company by showing how effectively it converts revenue into operating profit.

Formula: Operating Margin = (Operating Profit ˜ Revenue) ? 100

Operating Profit, also known as Earnings Before Interest and Taxes (EBIT), is derived by subtracting operating expenses such as cost of goods sold (COGS), employee salaries, rent, and depreciation from total revenue. A higher operating margin implies that a company is managing its costs well and retaining more revenue as profit from operations. Conversely, a lower margin may indicate rising costs or pricing pressures in a competitive market.

For example, if a company reports ?10 crore in revenue and ?2 crore as operating profit, its operating margin is 20%. This means that for every ?100 earned, the company keeps ?20 after covering all operating expenses.

Investors and analysts use operating margin to compare companies within the same industry. It provides insights into a companyís cost structure, scalability, and pricing power. However, it should not be evaluated in isolation ó factors like debt levels, taxation, and industry norms also play a role in understanding overall profitability.

In conclusion, Operating Margin is a vital indicator of a companyís operational strength. Consistent improvement in this ratio reflects efficient management and sustainable business practices, making it a critical parameter for long-term investment analysis.