This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
Operating Profit calculation: Sales less Cost of Sales (COS) less Operating Expense.
Operating Margin ratio: Operating Income as a percentage of Sales.
Example: The Round Number CompanySales = 200; COGS = 80; OpEx = 72 Operating Income = 200 - 80 - 72 = 48 Operating Margin = 48/200 = 24 % |
Operating Profit is the amount of Profit available after deducting from Sales the costs associated with the operations of the company (Cost of Sales, Operating Expenses), but before paying finance charges and taxes.
Operating Margin is the portion of Sales that remains after covering the Direct Costs and Operating Expenses.
Operating Profit is considered a useful management measure because it considers the revenue and expenses that are the manager's responsibility, but does not take into account the finance expense and taxes (which managers do not control).
Operating Profit is one of many possible finance terms for the same concept. It can also be known as:
| For a DIY Income Statement Calculator, including Operating Profit and Operating Margin, go here. |
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.