Which of the following is a correct interpretation of an ope

Which of the following is a correct interpretation of an operating margin of 0.35?

For each $1 of sales the firm earns thirty five cents in net income.

For each $1 of sales the firm earns thirty five cents before operating expenses.

For each $1 of sales, thirty five cents fall to the bottom line.

It takes sales of $1 to generate $35 in net profit after taxes.

For each $1 of sales the firm earns thirty five cents in EBIT.

Solution

Operating Margin is Excess of Operating Revenues over operating expenses. In other words it indicate how much business is left meeting their operating expenes from their revenues. Thus

Operating margin of 0.35 indicates - For each $1 of sales the firm earns thirty five cents in EBIT.