Gross margin and operating margin: how to calculate and read them

Both ratios use operating revenue as the denominator and show how much profit is left from each dollar of revenue.

Updated：2026-11-08

Calculation

• Gross margin = (operating revenue − operating costs) ÷ operating revenue × 100 (%): the share left after deducting direct costs.
• Operating margin = operating income ÷ operating revenue × 100 (%): the share left after also deducting operating expenses (selling, administrative and R&D expenses).
• Net profit margin = net income after tax ÷ operating revenue × 100 (%): the share after non-operating gains and losses and taxes.

For the definition of operating income itself, see “Three numbers to understand in an income statement”.

How to read it

• The higher the ratio, the more profit is left from each dollar of revenue; what matters is the trend of change, that is, comparing the same company across years and against the same quarter of prior years.
• Industries differ greatly in structure: retail usually has a low gross margin but fast turnover, while software and semiconductor equipment may have higher gross margins; comparing across industries has limited meaning.
• Changes in gross margin can be thought of in two directions: price (what the product sells for) and cost (raw materials, process, capacity utilization).

Notes

• Financial companies (banks, insurers, securities firms) have no operating costs or gross profit in their income statements, so the chart may have no data.
• A single quarter’s ratio is affected by seasonality, so compare it with the same quarter of last year.

Where to see it on this site

On a stock page, in the Financials tab, the “Profitability” section shows the quarterly trend of gross margin, operating margin and net profit margin.

This article only explains terms and how to calculate them. It is not investment advice.