Fire Your Stock Analyst!: Analyzing Stocks on Your Own

Operating Margin

Operating expenses include costs of goods sold, plus sales, general and administrative (SG&A) expenses, research and development, depreciation and amortization (if not in cost of sales), and most other costs of doing business, except interest expenses and taxes.

Operating income is sales less operating expenses:

operating income = total sales – operating expenses

Because it doesn’t account for interest expenses and income taxes, operating income is also called EBIT, an acronym for earnings before interest and taxes.

Operating margin is:

operating margin = operating income/total sales

Since depreciation and amortization are included in operating expenses, if not already included in cost of sales, the differences between the ...