6.11What is Operating Profit Margin?
1What is it?
Operating margin shows how much profit the core business keeps from each ₹100 of sales, before interest and tax.
2Why does it exist?
It reveals pricing power and cost control in the main business.
3Diagram
High value means…
Strong pricing power or efficient operations (IT services often 20%+).
Low value means…
Competitive or low-value business (retail, commodities often low).
Is high or low good?
Higher and stable or rising is better. Compare within the same industry.
4Calculation
Operating margin = Operating profit (EBIT) ÷ Revenue × 100
- Revenue = ₹10,000 cr; operating profit = ₹2,500 cr.
- Margin = 25%.
₹25 operating profit from every ₹100 of sales.
5Risks
- Varies hugely by industry.
- One quarter can be misleading; check several years.
6Practical use
Always compare a ratio with (1) the company’s own history and (2) other companies in the same industry. A single number on its own means little.
7Quick revision
- EBIT ÷ revenue.
- Shows core business strength.
- Compare within industry.
8Knowledge check
Q1. Revenue ₹400 cr, EBIT ₹60 cr. Margin?Show answer
15%.
Q2. Why compare within industry?Show answer
Normal margins differ by business type.
Q3. What does a falling margin suggest?Show answer
Rising costs or pricing pressure.
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