The operating profit margin is one type of profitability ratio also known as margin ratio. Operating profit margin indicates the operational efficiency of the company.i.e contributions on company’s profitability.
Other Operating income 10,18,313
Selling & Distribution Costs (5,75,275)
Administrative costs (3,25,130)
Other Operating expenses (133,120)
Operating Profit /EBIT 17,37,372
Interest Expenses (25,575)
Interest Income 18,258
Profit from investment 13,250
Earning before tax 17,43,305
Income Taxes (33,575)
Net Profit after tax 17,76,880
Using the formula,
Operating Profit Margin Ratio = Operating profit/Net Revenue x 100
Here, Operating Profit = 17,37,372
Net Revenue = 69,28,114
so, Operating profit ratio = 17,37,372/69,28,114 x 100 = 25.08%
Importance of Operating Profit Margin ratio
This ratio is the reliable indicator of a company’s financial health. To judge whether operating profit margin ratio is effective, you have to compare it with other similar companies.
Limitations of the Ratio
Data provided on financial statement may not accurate, that may provide false operating profit which result might not be reliable or financial statements that were prepared using inconsistent accounting records.
Another limitation is operating margin ratio also does not factor in any qualitative information about a company, nor does it give any indication of the probability of future results.