What does operating margin measure?

Operating margin is a key financial metric that measures the profitability of a company from its core operations. Specifically, it reflects the percentage of revenue that remains after deducting operating expenses, which include costs related to the production of goods or services (such as wages and rent). This metric is important because it provides insight into how efficiently a company is managing its operational costs relative to its sales.

The operating margin calculation focuses on earnings before interest and taxes (EBIT), allowing analysts and investors to evaluate the performance of the business without the impact of tax strategies or interest costs, which can vary from one company to another. By concentrating on operational efficiency, operating margin offers a clearer picture of how well the core business is performing, excluding external factors not related to operational performance.

Thus, the correct answer highlights that operating margin provides a view of profit generated from operations before accounting for interest and taxes, emphasizing the underlying operational effectiveness of a business.