Operating margin is the ratio of revenue or net sales a business keeps as operating income. It is calculated by dividing operating income by revenue or net sales. The result is then presented as a percentage by multiplying by 100.
For example, a business's operating income was $10,000 on a $50,000 revenue or net sales. Its operating margin is then $10,000/$50,000 = 0.2 x 100 = 20%.
Operating margin helps determine how efficient a company's day-to-day operations are. In the example above, the business's day-to-day operation made $0.20 for each dollar of revenue.
Prepaid Expenses
Prepaid expenses usually arise when businesses pay in advance for goods and services needed in the near term. Prepaid expenses usually appear on a balance sheet in the current assets subsection. This is because they're usually due within 12 months.
Insurance is one example of a prepaid expense. For example, assume your business pays up front for an insurance policy of $2,400 with a 12-month term. You will initially have a $2,400 prepaid expense asset on your balance sheet. As each month passes over the 12 month period, you'll reduce this asset by $200 and record an expense until the expense has been equally recognized over the course of the term.
Other typical prepaid expenses include rent, supplies, legal and other products or services paid for in advance.
Arrival
Revenue is the total amount of money a company brings in from its business activities after discounts, returned goods, and other sales allowances have been deducted. Businesses that sell goods, such as retailers, are more likely to refer to revenue as net sales. It is also called top-line because it usually appears at the top of an income statement.
Selling, General, and Administrative Expenses (SG&A)
