Operating Margin
Tier 2 · Engine Room · 1.0× weightHow much profit per dollar of sales after running the business?
Operating margin measures operational profitability as a percentage of revenue — specifically earnings before interest and taxes (EBIT) divided by revenue. It isolates core business economics from financing decisions and tax structures, making it a clean cross-company comparison metric that reflects actual business model quality.
Operating leverage separates businesses that scale profitably from ones that just get bigger and lose more money. Consistent margin expansion over time is one of the strongest signals of a durable, defensible business model.
Sector targets vary significantly because different industries have fundamentally different cost structures. A 15% operating margin is exceptional for a retailer operating on thin product margins, but would signal structural problems for a SaaS company with 80%+ gross margins.
At or above sector target ceiling
Positive but below sector target — improving trend noted
Negative operating margin — burning cash on operations