Formula
Operating margin = operating income ÷ sales × 100 (%)
With sales of KRW 100 billion and operating income of KRW 20 billion, the operating margin is 20%.
Definition
Operating margin is operating income divided by sales. It shows as a percentage how much of every KRW 100 of sales the core business kept as profit. An operating margin of 20% means the company kept KRW 200 of operating income from KRW 1,000 of sales.
The word “operating” matters here. It is the profitability of the business the company actually runs: sales minus only the cost of goods and overhead such as sales and administrative costs. Gains and losses outside the core business, such as interest income or gains on real estate disposals, are excluded, which makes it well suited to measuring the pure strength of the business.
A high operating margin means pricing power or good cost control, and it is also a trace of the moat that protects a company in competition. Jupick reads it in the profitability area with ROE and revenue growth.
How to read it
In general, a higher operating margin is read as a more profitable core business. In Jupick's strengths and weaknesses summary, 20% or more is generally labeled “High profitability in the core business” and below 5% “Low profitability in the core business”.
Sector traits always need to be considered. Low-cost sectors such as software and luxury goods reach operating margins of several tens of percent, while sectors such as distribution and construction, which run on thin margins and high volume or carry heavy costs, normally sit in single digits. Position within the same sector and the trend over time matter more than the absolute figure.
If sales keep growing while operating margin keeps falling, it may signal that the quality of the business is worsening through heavy discounting or rising costs.
Operating margin across the market now
The values that fall at each point when the stocks Jupick covers are lined up by Operating margin, smallest to largest. Positions in the line are used instead of an average because a few unusually large values can drag a single average a long way.
KoreaBased on 172 stocks
| Lowest 25% | Middle | Highest 25% |
|---|---|---|
| 3.0% | 7.4% | 13.5% |
Smallest value -723.9%, largest value 623.3%
Of the major Korean stocks, only 172 made it into this table. Left out: 28 stocks whose value is not a measured one.
OverseasBased on 199 stocks
| Lowest 25% | Middle | Highest 25% |
|---|---|---|
| 15.3% | 23.5% | 34.9% |
Smallest value 1.4%, largest value 80.7%
Stocks are rarely left out at random. Companies for which a metric does not hold, or for which the source gives no value, tend to be the ones in weaker shape, so the stocks left in the table are the ones in better condition. The middle value of such a table leans to the favorable side compared with the whole market, and the more stocks are left out, the more it leans.
How to read each range
- Lowest 25%
- The bottom quarter for the share of sales kept as operating income. Sectors with heavy costs or thin margins and high volume, such as distribution and construction, land here for structural reasons, so a low value alone hardly says the business is weak.
- Middle half
- Core business profitability is in the common range for the market. In this band, whether the margin is rising or falling compared with last year says more than the value itself.
- Highest 25%
- The top quarter for the share of sales kept as operating income. It can be a trace of pricing power or good cost control, and sectors with low costs to begin with, such as software, also gather here.
The two values at either end of the table above are the boundaries that split the stocks into three groups. What it means to belong to each group is written above.
Two stocks that fall just either side of a boundary have practically the same value. Being in different groups does not by itself make them different. The boundaries are drawn again from each day’s sample, so a company can change groups even when nothing about it has changed.
Lowest and highest describe the order of size only, not good or bad. The data is updated once a day.
Stocks with a high operating margin now
- 1BSK Square Co., Ltd.623.3%
- 2SMicron Technology, Inc.80.7%
- 3BAltria Group, Inc.76.4%
- 4SNVIDIA Corporation66.2%
- 5AVisa Inc.66.1%
Stocks on Jupick's watchlist with a positive operating margin, sorted from the highest.
Points to watch
- Operating income is affected by accounting policies (depreciation methods, timing of expense recognition and so on), so simple comparisons between companies under different accounting standards call for care.
- It is not the same as net margin. Even with a high operating margin, large interest expense, taxes or one-off losses can shrink final net income substantially.
- A single quarter can be swayed by seasonality or temporary costs, so annual figures or a multi-year trend are safer.