If a company's revenue is $500 and its operating margin is 20%, what is its operating profit?

• A. 100
• B. 25
• C. 200
• D. 50

Answer: (A)

Operating margin shows the portion of revenue that stays as operating profit after covering operating costs. It’s defined as operating profit divided by revenue, so to find the operating profit you multiply revenue by the margin.

Here, revenue is 500 and the operating margin is 20%, so operating profit equals 500 × 0.20 = 100. The operating profit is 100 (in dollars), and this is the figure before interest and taxes.