The Operating Income Margin is a profitability ratio that measures what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials etc. It is calculated by dividing the operating income by the revenue or net sales. This is a crucial indicator of the company's operating profitability.
The Operating Income Margin is often used to analyse the profitability of a company relative to its total sales, as it shows what proportion of the revenue remains after all the variable or operating costs have been paid. In other words, it provides an indication of the efficiency of a company's management by comparing the operating income to the net sales.
The higher the operating margin, the more profitable the company's core business is. This metric is often used by investors and analysts to compare the profitability of companies within the same industry where the companies have similar business models.
However, it's important to note that the operating margin does not take into account non-operating activities such as tax, interest, or investment incomes. Therefore, it should be used in conjunction with other financial ratios for a more comprehensive view of a company's financial health.
For Toyota, the operating income margin is calculated by dividing the operating income (which is calculated by subtracting the cost of goods sold and operating expenses from the total revenue) by the net sales from vehicles.
Apple's operating income margin is calculated by dividing the operating income (which is calculated by subtracting the cost of goods sold, research and development, and selling, general and administrative expenses from the total revenue) by the net sales from products and services.