Which statement best describes operating margin in relation to non-operating items?

• A. Non-operating items, such as interest and gains.
• B. Depreciation and amortization.
• C. Variable costs only.
• D. All taxes.

Answer: (A)

Operating margin measures profitability from core operations by focusing on operating income as a share of revenue from those operations. It excludes items not tied to day-to-day business activities, such as financing results or investment gains and losses. Because of that, non-operating items—like interest income or interest expense and other gains or losses not generated by regular operations—do not belong in the operating margin calculation. This keeps the metric centered on how efficiently the business itself is producing profit, independent of financing or one-time events.

Depreciation and amortization reduce operating income and are typically treated as operating expenses, so they do affect the operating margin. Variable costs are part of operating costs as well and influence the margin. Taxes are calculated after operating income, so they do not factor into operating margin either. In short, operating margin reflects operating performance, with non-operating items excluded.