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8.9 Operating Profit Margin Analysis

The Operating Profit Margin for a small business like A Touch of Tuscany is the Operating Income divided by the Sales of the business. In the world small business the earnings before income and taxes is used as the operating income. This ratio computes how much money the business has left over to pay for the interest on its loans and taxes and it gives a small business owner like Jack Gordon the ability to explain to the reader of the business plan just what kind of cushion the business has to pay its creditors.

In this analysis we can see that the operating margin is 7.5%, 8.8% and 10.1% of total sales which are projected to be $1.4mil, $1.5mil and $1.6mil in the years 2009, 2010 and 2011 respectively. What this means in simple english is that of every dollar earned in 2009 7.5 cents will towards the payment of interest and taxes. These margins of course can be easily affected if costs were to increase resulting in higher operating expenses andtherefore lowere operating profit ratios. Alternatively sales could come in higher than projected and that could improve these ratios if costs remainedthe same. Operating is currently projected to be $108k, $134k and $162k in the three coming years.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Questionnaire section for this industry.

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