How to Calculate Operating Profit Margin

Video Transcript

"My name is Miranda Chook, a CPA. An income statement is one of the required financial statements requir, as required by GAP. And an income statement is a measurement of a companies earnings performance. Now, somewhere between the middle towards the end of an income statement will be operating income. So after you see sales, costs of goods sold, and gross margin, you'll see operating income and operating expense to arrive at operating income. Sometimes it's called income before taxes. Now to calculate the margin or to see how that is expressed as a percentage, you just take that operating income. Again, it's usually labeled something like operating income before taxes, and divided by sales and there you'll you'll have calculated that item expressed as a percentage. Now in and of itself, it may not be too meaningful so it needs some context to compare to prior periods, compare it to forecasts if the company provides them and see if other companies within the industry also disclose that percentage to give a better idea for how well this company is doing."