Operating Margin

What is Operating Margin? — Definition

Operating Margin = Operating Income (EBIT) / Revenue × 100. It measures how efficiently a company runs its core business. A 20% operating margin means the company keeps $20 from every $100 in revenue after paying employees, rent, marketing, R&D, and other operating costs — but before paying interest on debt or taxes.

Operating margin is one of the best metrics for comparing companies within the same industry because it strips out financing decisions (how much debt they carry) and tax rates (which vary by country). Expanding operating margins over time signal improving efficiency or pricing power.

Example

Amazon's operating margin was near 0–3% for most of its history as the company reinvested aggressively. By 2023, after scaling AWS (its cloud business), operating margins exceeded 7% and were trending higher — a major reason the stock more than doubled in 2023.

Operating margin expansion is one of the key signals BMInsider's 100X Insider Reports look for when identifying companies at an inflection point in their profitability trajectory.