Calculating Profit: Operating Profit and Operating Profit Margin

What is operating profit:

• Operating profit is the difference between sales revenues, cost of goods sold and other operating costs

Operating profit margin equation:

Operating profit margin % = Operating profit £ / Sales revenue £

Interpreting the operating profit margin:

• Look for changes from one year to another (and compare with other similar businesses)

• E.g. A fall in operating profit margin might suggest higher operating costs and/or a lower gross profit margin

• E.g. An increase in operating profit margin might reflect a higher gross profit margin and/or better control of operating costs