What's the difference between profit margin and operating margin?

Modified on Tue, 19 Jun 2018 at 04:54 PM

Operating margin and profit margin both measure the efficiency of a firm by comparing profits against costs at three different spots on an income statement. On their own, these margins do not tell much of a story, but they are very useful when compared to past periods or to competitor firms in the same industry.

The differences between profit margin and operating margin can be telling and can help a firm identify potential areas of waste.

What Is Profit Margin?

There are two types of profit margin: gross profit margin and net profit margin. Gross profit margin reflects the relationship between gross sales revenue and cost of goods sold, ignoring other variables that may have less to do with selling merchandise. This is the most basic profit margin calculation, and it provides some estimate of a company's ability to control or minimize production costs.

Source : Investopedia

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