Operating Margin And Operating Margins - 1827 Words

Operating Margin By having a good operating margin which is a margin ratio used in measuring a company s pricing strategy and operating efficiency. The operating margin, measures your operating profitability, it indicates how much of each dollar of revenues used is left over after both costs of goods sold and operating expenses are considered. Operating margins are important because they measure efficiency. The higher the operating margin, the more profitable a company s core business is. For example, I created a mock report called Dean s report In the report I have the following numbers on my financial statement for my event I held. net sales: $1,000,000 cost of goods sold: $700,000 rent: $20,000 wages: $100,000 other operating expenses: $50,000 net sales – all operating expenses = 530,000 then create a formula similar to this .53 = 530,000 - 1,000,000 as you can see, Dean s operating income is $530,000 (Net sales – all operating expenses). According to the formula used, Dean’s operating margin is .53. By taking that away from 110 this means that 57 cents on every dollar of sales are used to pay for variable costs. Only 53 cents remains to cover all non-operating expenses or fixed costs. Working Capital Ratio Working capital ratio, the working capital ratio, also called the current ratio. Is a liquidity ratio that measures a firm s ability to pay off its current liabilities. For example, financial obligation, with their current assets. Working capital is calculatedShow MoreRelatedExxon versus Chevron Essay1576 Words   |  7 Pagesgross profit, operating profits, and net income of both Exxon and Chevron for 2012 and 2013. Of the two companies, speculate on the main reasons why one company may have been more profitable than the other company. 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