Operating Margin Analysis Paper

Profitability ratios are functions of both the industry and a company’s position within the industry. The boundaries are set by the operating characteristics of the industry, within these boundaries profitability ratios are determined by a player’s relative position. Gross profit margin should stay constant or increase because cost of goods sold should be a constant percentage of sales or should decrease as the company’s price increases and/or volume discounts. Gross profit margin was slightly favorable stable at 28%. The horizontal analysis information showed that sales had been averagely increased by 26% from 2001 to 2003.However the operating cost had been averagely increased by 27%.

Stretch B. and Whitehouse M. –Health and Social Care Level 3 Book 1 BTEC National. London: Pearson Education Limited, 2010

Pew, Stephen, Ph.D (2008). Introduction to Health Services. 7th Ed. [Video] Thomson Delmar Learning. Retrieved from:

In general there are 10 ratios that govern the finances of an organization. But, we have been given only three ratios though all the ratios are essential because they acquire nearly 90 percent of the information contained in the financial statements. These can be any but we have to choose the best three that certainly makes the difference. The major three ratios would be the operating margin, it is an essential ratio that deals with the organization’s profitability

which gives an operating profit margin of .037. The previous accounting period the company had OPM of .035. During this same accounting period AMR had a net loss.

This is where Office Depot’s problems, as well as some of Staples’ become apparent. For Staples, there is wide variation in this margin from year to year, whereas their gross profit margin had relatively small variation. This signifies that Staples likely has less control of its expenses that are incurred in the operating section. An improvement in controlling these expenses could not only improve the bottom line, but also make the company’s earnings more predictable from year to year. Staples still fares comparatively well here when compared to Office Depot, who is already losing money before interest and income taxes are subtracted. It is interesting that, despite its many advantages in most functional areas, Amazon lags behind Staples here. This may indicate that a certain competency exists here for Staples to

2. The process of profit margin. Given the profit margin range of 9.2% to 10.1% between the following ten years from 1989 to 1998, it is acceptable to assume that the margin rate was uniformly continuous with a 0.1% increase from year to year.

Williams, S. J., & Torrens, P. R. (2008). Introduction to Health Services (Seventh ed.). Chpt. 6, pp. 144 - 54.

Used to determine the competitive strength and cost effectiveness of a company, the operating profit margin shows what percentage of a company’s revenue is left over after covering variable costs. It is the operating profit divided by the net sales. Essentially, the operating profit margin depicts how much a company makes on each dollar of sales.

The operating margin gives an indication of management efficiency in controlling costs and increasing revenues as

Furthermore, in conjunction to considering Operating Margin, you would also consider Net Profit Margin. Exelon most current Net Profit Margin is 8.61%. Net Profit Margin is the Income after taxes divided by Total Revenue for the same interval of time. It is used to report the cost-effectiveness. A business that is growing its net earnings or reducing its costs is alleged to be improving. Net Profit Margin is expressed as the business “bottom line.” The bottom line also refers to any activities that may increase or decrease net earnings or a business’s overall profit (Investopedia, 2015).

Operating profit is for a certain period divided by revenues for that period. Operating profit margin indicates how effective company is at controlling the costs and expenses associated with their normal business operating. Refer the exhibit 1-1,

When running a business, calculating margins is an essential component. Margins not only can help us figure out what our total revenue will be, they also help us decide if we need to expand as a business, stay where we are, or try to downsize. Of course other factors can be put into this as well; did prices of the goods and services we provide go up? Does this mean we should hire more people? When is a good time to hire more people? These are all things I’ve learned from this module’s reading material.

It is also called as margin ratio which is calculated as companies operating income to the sales revenue. Operating income is earnings before income and taxes. Profitability and cost control are the main components related to operating profit margin.

Cost of Goods           $ 11,500    $ 15,500  $ 19,000   $ 22,500   $ 26,000     $ 27,000    $ 26,000    $ 23,500     $ 30,500   $ 27,500    $ 22,500    $ 25,500     Gross Margin             $ 12,500    $ 16,500  $ 21,000   $ 23,500   $ 27,000     $ 27,000    $ 27,000    $ 24,500     $ 31,500   $ 30,500    $ 25,500    $ 26,500     Gross Margin %         52.08%    51.56%   52.50%   51.09%    50.94%     50.00%     50.94%    51.04%     50.81%    52.59%    53.13%    50.96%