What is operating margin?

The operating margin is also known as the EBIT margin or the operating margin. It is a financial ratio that expresses the profitability of a specific company, depending on the profits it has obtained, and before taxes are deducted and interests. In order to have this margin, it is necessary to divide the EBIT by the sales or net income.

How the EBIT / BAIT margin is calculated

EBIT is BAIT, which stands for Earnings Before Interest and Rates. It is calculated as follows:

Margin BAIT = BAIT / Net income

Where BAIT is calculated by adding to net profit taxes and interest. This indicator reflects the benefit generated by the economic activity of the company, ignoring the financial rate and the intervention of the State in matters of impuestos and fees.

The use that is given to the operating margin is fundamental, since it allows comparing companies from different sectors that do not operate in the same place. In this way, the taxes that are applied in the different countries.

They allow evaluating different levels of debt, as well as the profit margin that they will obtain according to the net profit of each one. The most profitable options are those that pay the highest EBIT margin among companies that compete in the market.

Finally, it is also necessary to emphasize the difference between the concepts of EBIT and EBITDA. He EBITDA is closer to the profits generated by the operations of the organization, excluding in addition to interest and taxes the expenses of depreciación y amortization.

If we want to contrast different results of companies with different capital levels, this ratio is the right one for it. In addition, it is an indicator that can give us a better value with greater precision about the funds available to the company to be able to fulfill its obligations.

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