Operating expenses are costs that every business has to pay for that aren't directly related to its main business. Operating costs include sales and marketing, research and development (R&D), administrative costs, and other costs that don't directly affect the business.
Investors want to know that the company's leaders are doing everything they can to keep these costs under control and keep their bottom line stable. Operating costs are listed on the financial statements that every company with shares on the stock market has to file with the SEC.
Management must also do a good job with its own operations to make money. That means that the cost of goods sold (COGS) and other costs must bring in more money than they cost. If not, then the business must be in the wrong field. Losses should never be made by a business. A potential investor needs to know why a business is losing money if it is losing money.
Operating margins show how sales revenue and operating income are linked directly to each other. Operating margin is the difference between a company's operating income and its net sales. It shows how much a company makes in gross profit before taxes are taken out.
Every year, companies that are run well should be able to increase these margins. The higher these margins are, the more money the company can make and give back to shareholders. When comparing two stocks that compete in the same market, operating margins can be helpful.
A company with higher operating margins is in a better position to make money. For example, a company with a lower operating margin than a competitor in its market will have less freedom to set prices. Its competitor with higher profit margins will know this about it and can "go for the jugular" by lowering prices and taking market share.
