As the name implies, operating margin is the resulting ratio when Operating Income is divided by Net Sales. This ratio measures the quality of a firm's operations. A firm with a high operating margin in relation to the industry average has operations that are more efficient. Typically, to achieve this result, the company must have lower fixed costs, a better gross margin, or a combination of the two. At any rate, companies that are more efficient than their competitors in their core operations have a distinct advantage.
Efficiency is good.
Advantages are even better. Most investors will tend to prefer a more efficient company. Let's move on to the last profitability measure we will cover in this section. Net Margin . As the name implies, Net Margin is a measure of profitability for the sum of a firm's operations.