If a company has an operating margin ratio of 15%, what does it indicate?

The operating margin ratio is a measure of a company's operational efficiency and profitability, reflecting the percentage of revenue that is left after covering operating expenses, which include both fixed and variable costs. An operating margin ratio of 15% indicates that for every dollar of revenue generated, the company retains $0.15 as operating profit. This means that the remaining $0.85 of each dollar in revenue goes towards covering all operating expenses, such as costs of goods sold, salaries, and rent.

This understanding helps stakeholders gauge how effectively a company is managing its operations before accounting for interest and taxes. It also provides insight into the company's pricing strategy and cost structure, demonstrating how much profit can be achieved from operational activities alone.

The context provided by this measurement allows investors and management to assess performance over time or against industry benchmarks, as a higher operating margin generally suggests a better conversion of sales into profit.