How is operating margin calculated?

The formula is: Operating Margin = Operating Income / Revenue = (Revenue − COGS − OpEx) / Revenue. The full breakdown is on this page, including a worked example on MSFT.

Why does operating margin matter for value investing?

Operating Margin is a quality metric documented across Warren Buffett's 50+ years of Berkshire Hathaway shareholder letters and the broader value-investing canon (Graham, Fisher, Lynch, Greenblatt). It feeds into the Buffett-Fit composite score on invest-like - graders apply it consistently across every public stock so you can compare like-for-like.

Where can I see operating margin for a real stock?

Open /buffett/msft/ on invest-like for MSFT's Operating Margin value alongside the rest of the 5-pillar Buffett-Fit verdict. Every public stock in the 12,000-ticker universe has the same field - refresh daily.

How is operating margin different from gross margin?

Operating Margin and gross margin are both quality metrics - see the linked term for the distinction in mechanics and use. The Buffett-Fit framework on invest-like uses both in the composite score with different pillar weights.

Operating Margin - Definition, Formula + Buffett Example

The % of revenue that's left after both direct costs AND operating expenses (R&D, SG&A). Captures full operational efficiency.

What it is

Operating 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.

Why it's the better profitability number

Gross 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.

What "good" looks like

30%+: software, exchanges, top-tier brands
15–25%: high-quality industrials, healthcare, premium consumer
5–15%: most retail, mid-tier industrials
< 5% or negative: commodities, low-margin businesses, growth-stage tech

Pair with revenue growth

The 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.

Operating Margin

What it is

Why it's the better profitability number

What "good" looks like

Pair with revenue growth

Related terms

See it on a real stock

Related on invest-like