In business, operating margin — also known as operating income margin, operating profit margin and return on sales (ROS) — is the ratio of operating income ("operating profit" in the UK) divided by net sales, usually presented in percent.
Net profit measures the profitability of ventures after accounting for all costs.
Return on sales (ROS) is net profit as a percentage of sales revenue. . . . ROS is an indicator of profitability and is often used to compare the profitability of companies and industries of differing sizes. Significantly, ROS does not account for the capital (investment) used to generate the profit. In a survey of nearly 200 senior marketing managers, 69 percent responded that they found the "return on sales" metric very useful.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a rough measure of operating cash flow, which reduces the effect of accounting, financing, and tax policies on reported profits.
3 See also
These financial metrics measure levels and rates of profitability. How does a company decide whether it is successful or not? Probably the most common way is to look at the net profits of the business. Given that companies are collections of projects and markets, individual areas can be judged on how successful they are at adding to the corporate net profit. Not all projects are of equal size, however, and one way to adjust for size is to divide the profit by sales revenue. The resulting ratio is return on sales (ROS), the percentage of sales revenue that gets 'returned' to the company as net profits after all the related costs of the activity are deducted.
Net profit measures the fundamental profitability of the business. It is the revenues of the activity less the costs of the activity. The main complication is in more complex businesses when overhead needs to be allocated across divisions of...