What is Operating Margin?

Operating Margin is a profitability ratio that indicates how much profit a company makes from its core business operations, before accounting for interest and taxes. It is calculated by dividing the operating income by revenue and is expressed as a percentage.

For Startups: For a startup, the operating margin is a crucial indicator of operational efficiency. While an early-stage startup may have a negative operating margin as it invests in growth, investors look for a clear trend of improvement over time. A healthy, positive operating margin demonstrates that the core business model is viable and can scale profitably.

Calculation: Operating Margin = (Operating Income / Revenue) * 100%.

Example: A company with revenue of ₹1 Crore and an operating income of ₹15 Lakhs has an operating margin of 15%.