Quick Definition
Determines the level of profitability of a company's operations.
Operating Profit Percentage Formula
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Operating Profit Percentage
Explanation of Operating Profit Percentage
The Operating Profit Percentage measures how much of a profit the company is generating from their main operations. Subtracting the
Cost of Goods Sold and
Sales General and Administration expenses from the
Net Sales reveals estimated
Operating Expenses.
Importance of Operating Profit Percentage
This ratio uncovers situations where companies are relying on actions other than operations to generate an income. Investing activities and sales of assets generate revenue, but these actions are not usually sustainable and regular as maintaining a steady flow of sales. A high, or increasing Operating Profit Percentage is usually a positive sign, showing the company is increasingly able to generate sales from its operations.
