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Real Questions from Real Subscribers

Q: What is the difference between gross profit margin and operating profit margin?

A: Dear Subscriber,

In general, gross profit margin reflects the percentage of revenue left over after the cost of producing goods or services. Operating margin reflects the percentage of revenue left over after not just producing, but also selling the goods and services and paying other operating expenses.

Of course, not all firms report their results the same way, so the numbers don’t always compare cleanly from company to company. Occasionally you'll find a company that lumps everything together, so gross and operating margins are the same.

However, if you think of gross margin as what's left after production costs and operating margin as what's left after operating costs, you'll have a good idea how to interpret those numbers for most companies.

Thanks for your interest,

Bob Sweet, CFA
Managing Editor, Dow Theory Forecasts

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