Operating Profit Margin Definition and Explanation

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Quick Definition

Measures the efficiency of the regular company operations.

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Operating Profit Margin Formula

Operating Profit
Net Sales
=
Operating Profit Margin

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Explanation of Operating Profit Margin

The Operating Profit Margin measures the Operating Profit in relation to the Net Sales. This reveals the operating efficiency of the company – how well the company can convert its sales into profits from its day-to-day activities by its core operations.

Importance of Operating Profit Margin

The higher the Operating Profit Margin, the more efficient the company’s core business. This ratio is interesting to compute between two or more competing companies in the same industry – to view which has the most efficient operations.