What is the difference between operating profit margins and net profit margins? Which one is a better indicator of a company's financial health/performance?
Net Margin
Net margin is a company's overall profitability. To calculate net margin, you divide a company's net income by its total revenue. Net margin is usually expressed as a percentage. For example, if a company has a net margin of 5%, it has a profit of Kes. 0.05 for every Kes. 1 of sales.
Net margin is a good indicator of a company's overall profitability, but it doesn't give you much insight into how it generates that profit. For that, you need to look at the operating margin.
Operating Margin
Operating margin is a company's profitability from its core operations. To calculate the operating margin, you divide a company's operating income by its total revenue. The operating margin is usually expressed as a percentage. For example, if a company has an operating margin of 10%, it has a profit of Kes. 0.10 for every Kes. 1 of sales.
The operating margin is a good indicator of a company's profitability from its core operations. It's a more detailed metric than net margin and can give insights into where a company is generating its profit.