What Does “Operating Profit Margin” Mean?
To understand what we mean by “operating profit margin,” let’s break this phrase down into its component sparts: • Operating. This means we only include operational expenses in this calculation. Specifically, we exclude all costs associated with financing activities, including interest payments from debt and amortization of intangibles from acquisitions. We also exclude tax expenses from this metric, making this a “pre-tax” measure. • Profit. This means we are calculating profits, i.e. what’s left after subtracting expenses from sales. • Margin. This means we are calculating operating profit as a percentage of sales. More specifically, “operating profit margin” equals the percentage of sales left after subtracting the following: • Cost of sales • General and administrative expenses • Sales and marketing expenses • Research and Development expenses • Depreciation of property, plant and equipment. • Any recurring non-financing expense associated with a company’s ongoing operations We do
