How To Calculate Operating Margin Ratio?

To calculate this ratio, is necessary to know the hospitals operating incomes and nets sales. One needs to add the total operating income, and then add the total net sales. The next step is dividing the total operating income by the total net sales, to get the operating margin ratio. The method for calculating operating margin is: Operating margin = Operating income/ Net sales

(Anderson & Parker, 2013).

How does operating margin inform an individual about the organization?

Operating margins indicates the effectiveness and efficiencies. Higher operating margins shows corresponding high profits in the business, while low operating margins indicates less profits. It is therefore evident that the hospital is not meeting the required standards and goals since it has low operating margins. The operating margins is also seen as a measure of managerial tractability and competency, therefore the management team in the hospital is not competent enough to continue running the hospital since it not been efficient for three years (Asghar, 2011).

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