Calculate Operating Margin

In the article “Calculate Profit Margin”, we showed how to calculate the profit margin from business’s financial statement. In this article, we are going to discuss the operating margin and show the equation and steps how to calculate operating margin from company’s net income statement. We are going to use net income statement from MSN Money website as an example to show the calculation
 

What is Operating Margin

Similar to Profit Margin, Operating Margin is also one of the ratios to measure business’s profitability. The only difference is that instead of using net income, operating margin uses operating income to calculate the ratio
=>Operating Margin = Operating Income / Revenue
 

Difference between Operating Income and Net Income

As the name suggested, operating income is income generated solely from operating activity. Take the net income statement of Caterpillar Inc. (CAT) downloaded by Stock Financial Statements Download (SFSD) for example. It is obvious that
Operating Income = gross profit – operating expenses
Where operating expenses = Gross profit - selling general and administrative – research and development – special income/charges – interest income/expense
As for net income, it is derived from operating income minus nonoperation expense
=> Net income = operating income – nonoperation expense
= operating income – net interest income – other income – pretax income – provision for income tax – minority interest

 


 
 

Calculate Operating Margin from Financial Statement

We are going to use income statement from company Caterpillar (CAT) to show how to calculate Caterpillar’s operating margin. You can access Caterpillar’s income statement here or you can use or product, Stock Financial Statements Download, to download and export Caterpillar’s income statement.