Lesson 2 of 8
Operating margin by industry
Operating margin medians for US sectors, dated and sized, and why reported operating income and a computed EBIT differ.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- Operating margin is operating income over revenue: what is left after every cost of running the business, before interest and tax.
- Sector medians run from far below zero to above 20 percent, so a single cross-industry benchmark libels most sectors it is applied to.
- Reported operating income, adjusted operating income and a computed EBIT are three different numbers for the same company.
Operating margin depends on the industry first. Sector medians on 2026-09-07 ran from -33.98 percent to 20.74 percent, and the spread inside one sector was wider still.
Median operating margin, seven of eleven sectors
- Healthcare · 636 companies−33.98%
- Technology · 599 companies2.03%
- Consumer Cyclical · 379 companies4.59%
- Industrials · 499 companies6.12%
- Financial Services · 144 companies12.50%
- Real Estate · 117 companies17.66%
- Utilities · 87 companies20.74%
Median, all US companies: 3.98%
Three readings, not one benchmark
The sector medians ran from -33.98 percent in Healthcare to 20.74 percent in Utilities on 2026-09-07: a single benchmark placed anywhere between them describes one sector and misdescribes the rest. Inside a sector the spread is wider than the gap between neighbours. Industrials' quartiles ran from -4.03 percent to 14.62 percent, while its 6.12 percent median sits close enough to Consumer Cyclical's 4.59 percent that a company's sector label says less than its position inside that sector does. This cohort excludes nobody as not applicable, so Financial Services and Real Estate appear even though neither reports operating income on a basis comparable to a manufacturer's.
Which operating income, and who decided
Under US GAAP, restructuring costs and asset impairments sit inside operating income whenever a company presents that subtotal (ASC 420 and ASC 360). The discretion is elsewhere: what goes into other income, pension costs other than service cost, which must sit outside operating income, and above all the adjusted operating income a company presents beside GAAP, which removes those charges again. An EBIT rebuilt from net income plus interest and tax captures everything, including non-operating gains. Most companies also present an adjusted operating income, reconciled to GAAP under Regulation G. The reconciliation is the useful document: a charge removed in each of five consecutive years is a recurring cost presented five times as an exception.
Why a thin revenue line breaks the ratio
| Year 1 | Year 2 | |
|---|---|---|
| Revenue | 20 | 10 |
| Operating costs | (120) | (120) |
| Operating margin | -500.0% | -1,100.0% |
Spending is unchanged. Revenue halved and the margin more than doubled in magnitude. That is the shape consistent with Healthcare's -469.59 percent lower quartile, where many companies carry small revenue against large research budgets. Where revenue is small relative to cost, read the absolute loss and the cash it consumed, not the margin.
Volume moves it without any decision
Prices, unit costs and fixed costs are unchanged. A margin measured at the top of a cycle is not a durable margin, and one measured at the bottom understates the business.
Do it on a real 10-K
- Copy operating income and revenue from Item 8 for every year the last three 10-Ks show.
- Note whether restructuring and impairment sit above or below the operating line each year.
- Find the non-GAAP reconciliation and list what recurs across every year.
Check yourself
Sector medians for operating margin run from -33.98 percent to 20.74 percent. What follows?
- The lower sectors are badly managed
- A single cross-industry benchmark misdescribes most sectors it is applied to
- The measurement contains an error
Show the answer
Answer: B.
The spread is a fact about business models, not a data problem. Medians describe it more honestly than one benchmark number.A company's revenue halves while its fixed costs stay the same. What happens to its operating margin?
- It stays the same
- It moves in proportion to revenue
- It can move by far more than the change in revenue
Show the answer
Answer: C.
With fixed costs unchanged, a small revenue line turns an ordinary loss into a very large negative percentage.Reported operating income and a computed EBIT differ for the same company and year. Why?
- One of them must be wrong
- Non-operating items sit below the operating line but inside a bottom-up EBIT
- EBIT always excludes tax and operating income never does
Show the answer
Answer: B.
Both constructions can be correctly computed and still disagree by the size of the items placed differently.Sources
- Regulation G and Item 10(e) of Regulation S-K, on reconciling non-GAAP measures to GAAP.
- ASC 280, Segment Reporting, and ASC 350, Intangibles, Goodwill and Other.
- ASC 420, Exit or Disposal Cost Obligations, and ASC 360, Property, Plant, and Equipment, on impairment.
- The operating margin distribution published on the open research pages of ValueScreener, built 2026-09-07.
What this leaves out
- The table is a set of dated cross-sectional breakpoints, not a benchmark; it does not say what any company's margin ought to be.
- It was computed 2026-09-07 from filed statements and is rebuilt on a cadence; later readers see different numbers.
- Sector is a mixed classification: the data vendor's where it supplied one, and since 2026-09-12 derived from the filed SIC code on the SEC's own submissions record where it did not. Financial Services and Real Estate report operating income on a basis that is not a manufacturer's.
- Nothing here is advice about any security.