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Tips for making your operating profit margins higher
The operating profit margin is a ratio used to determine this number and can be calculated as: operating margin= operating income/net sales.
A higher profit margin is necessary for companies because it allows them to be able to pay for their fixes costs, like interest on the debt they have incurred. In addition, a higher operating profit margin is generally indicative of a company that is enjoying greater financial stability. Companies should strive for higher operating profit margins, although this is not always easily done. A company that is considered to have a high operating profit ratio has one of over 30 percent on average, although it varies from industry to industry. Higher operating profit margins come as a result of fewer operating expenses. For example, let's take two construction companies, one that owns all of its equipment and one that rents it all. The company that owns all of its own equipment, instead of leasing or renting it, will most likely have a higher profit margin, since they have fewer operating expenses. The company that rents its equipment and machinery has a lower operating profit margin because it is spending money on the equipment. However, operating margin isn't always an indication of the quality of a company. This can better be determined by looking at the change in operating margin over a figure of time. A good indication of a company's quality is a steady increase in the margin, which means it is earning more per dollar of sales. Tips for making your operating profit margins higher
There are a number of ways you can make your operating profit margin higher; however, it is important to take all things into consideration before cutting costs in certain areas. If you begin denying your customers little perks and luxuries they are used to, you could end up losing their business entirely, which will have a negative effect on your operating profit margin.
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