Operating Margin

What it is\nOperating income (EBIT) divided by revenue. Microsoft at 42% operating margin earns 42 cents of operating profit per dollar of revenue. Amazon retail at 4% earns 4 cents.\n\n## Why it's the better profitability number\nGross margin tells you about pricing power. Operating margin tells you about pricing power AND operational discipline. A company with a 60% gross margin but a 5% operating margin is bleeding money on overhead, marketing, or R&D — the topline is healthy but the underlying business isn't.\n\n## What "good" looks like\n- 30%+: software, exchanges, top-tier brands\n- 15–25%: high-quality industrials, healthcare, premium consumer\n- 5–15%: most retail, mid-tier industrials\n- < 5% or negative: commodities, low-margin businesses, growth-stage tech\n\n## Pair with revenue growth\nThe most powerful Buffett-quality signature is expanding operating margin alongside growing revenue. A business that gets more profitable per dollar AS it grows has true operating leverage and a real moat.