In this section:
Application: Star of Flavors
States :
Étoile de Saveurs is a restaurant chain that is looking to optimize its profitability. You are responsible for calculating the operating margin for one of its establishments in Paris. Here are the financial elements for the month: turnover is €150, total variable costs are €000, and fixed costs are €75.
Work to do :
- What is the establishment's gross margin?
- Calculate the operating margin based on the data provided.
- What is the operating margin rate compared to turnover?
- If variable costs increase by 10%, what will the new operating margin be?
- Comment on the potential impact of this increase in variable costs on profitability.
Proposed correction:
-
Gross margin is calculated as the difference between revenue and variable costs.
Formula: Gross margin = Revenue – Variable costs
Replacing: €150 – €000 = €75.
The gross margin is therefore €75. -
Operating margin is calculated by subtracting fixed costs from gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €75 – €000 = €40.
The operating margin is €35. -
The operating margin rate is obtained by dividing the operating margin by the turnover and multiplying it by 100.
Formula: Operating margin rate = (Operating margin ÷ Revenue) x 100
Replacing: (€35 ÷ €000) x 150 = 000%.
The operating margin rate is 23,33%.
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If variable costs increase by 10%, they become €82. The new gross margin will be €500 – €150 = €000.
The new operating margin will be €67 – €500 = €40.
The new operating margin is therefore €27. -
The increase in variable costs results in a decrease in operating margin from €35 to €000. This reduction could significantly affect profitability if no corrective action is taken.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Operating margin rate | (Operating margin ÷ Turnover) x 100 |
Application: TechnoPlus Solutions
States :
TechnoPlus Solutions, a company in the technology sector, wants to know its operating margin for its innovation department. For the year 2023, the department generated a turnover of €500, with variable costs of €000 and fixed costs of €250.
Work to do :
- Determine the gross margin for the innovations department.
- Calculate the annual operating margin.
- What is the percentage change in operating margin if fixed costs decrease by 5%?
- Identify potential levers to improve operating margin.
- Explain how better management of variable costs could impact results.
Proposed correction:
-
Gross margin is calculated by subtracting variable costs from revenue.
Formula: Gross margin = Revenue – Variable costs
Replacing: €500 – €000 = €250.
The department's gross margin is €250. -
Operating margin is obtained by subtracting fixed costs from gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €250 – €000 = €150.
The annual operating margin is €100. -
A 5% decrease in fixed costs of €150 corresponds to €000.
The new fixed costs are therefore €142, and the new operating margin is €500 – €250 = €000.
The rate of change is ((€107 – €500) ÷ €100) x 000 = 100%.
Operating margin increased by 7,5%.
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To improve operating margin, TechnoPlus Solutions could consider reducing its variable and fixed costs, for example by optimizing processes, increasing production volumes to reduce unit cost or by revaluing prices.
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Better management of variable costs, potentially through resource optimization and waste reduction, can free up funds and increase operating margin, thereby increasing overall profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Variation rate | ((New – Old) ÷ Old) x 100 |
Application: Well-being Health
States :
Bien-être Santé, a company specializing in wellness products, wants to analyze the financial performance of one of its flagship products. For the first half of the year, the turnover generated by this product is €200, variable costs amount to €000, and fixed costs dedicated to this product amount to €120.
Work to do :
- How is the gross margin calculated for this product?
- What is the operating margin for this product in the first half?
- If revenue increases by 10%, what will be the impact on operating margin?
- Determine the break-even point in number of sales if the unit sales price is €50.
- Discuss the importance of operating margin in Wellness Health's long-term strategy.
Proposed correction:
-
Gross margin is the difference between revenue and variable costs.
Formula: Gross margin = Revenue – Variable costs
Replacing: €200 – €000 = €120.
The gross margin for this product is €80. -
Operating margin is calculated by deducting fixed costs from gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €80 – €000 = €50.
The operating margin is €30. -
With a 10% increase in turnover, this becomes €220.
The new gross margin is €220 – €000 = €120.
The new operating margin is €100 – €000 = €50.
The increase in turnover translates into an operating margin of €50, an increase of €000.
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The break-even point is reached when turnover covers all costs.
For this, CA break-even point = Fixed costs + Variable costs.
Here: PM = €50 + €000 = €120.
By dividing by the unit selling price, the break-even point is calculated as follows:
( \frac{170, €}{000, €} = 50) sales.
The break-even point is therefore 3 units. -
Operating margin plays a crucial role in long-term strategy as it indicates profitability after deducting direct and fixed costs, helping to guide investment decisions, pricing strategies and process improvement.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Neutral | Fixed costs + Variable costs ÷ Unit selling price |
Application: Mode&Co
States :
Mode&Co, a major player in ready-to-wear, analyzes its profitability for its spring-summer collection. The collection generated a turnover of €800 with variable costs amounting to €000 and associated fixed costs of €450.
Work to do :
- Calculate the gross margin generated by the collection.
- Determine the operating margin.
- If an internal reorganization reduces fixed costs by 20%, how much will the new operating margin be?
- Evaluate the impact of a 15% increase in revenue on gross margin.
- To analyze the importance of a good operating margin ratio in a competitive industry like fashion.
Proposed correction:
-
Gross margin is obtained by deducting variable costs from turnover.
Formula: Gross margin = Revenue – Variable costs
Replacing: €800 – €000 = €450.
The gross margin is €350. -
The operating margin is calculated by subtracting fixed costs from the gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €350 – €000 = €200.
The operating margin is €150. -
A 20% reduction in fixed costs means fixed costs reduced by €40 (€000 x 200).
The new fixed costs are therefore €160.
The new operating margin will be €350 – €000 = €160.
Cost reduction will increase the margin to €190.
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If the turnover increases by 15%, it rises to €920.
The gross margin becomes €920 – €000 = €450.
This increase in turnover increases the gross margin by €120. -
In an industry like fashion where competition is fierce, a good operating margin ratio is essential to support investments in design, production and advertising. It also ensures positive cash flow to quickly resolve industrial challenges.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Reduction of fixed costs | Fixed costs x Reduction percentage |
Application: GreenInnovation
States :
VertInnovation is a green technology startup that wants to calculate the operating margin on a series of new products. In the last quarter, these products generated a turnover of €300, with variable costs of €000 and fixed costs of €180.
Work to do :
- Determine the gross margin of the product series.
- How much is the operating margin?
- What would be the effect of a 5% reduction in variable costs on operating margin?
- Provide suggestions for increasing profitability without changing revenue.
- Explain how sustainability strategies can positively impact operating margin.
Proposed correction:
-
Gross margin is calculated as the difference between turnover and variable costs.
Formula: Gross margin = Revenue – Variable costs
Replacing: €300 – €000 = €180.
The gross margin is therefore €120. -
Operating margin is obtained by subtracting fixed costs from gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €120 – €000 = €70.
The operating margin is €50. -
A 5% reduction in variable costs, or €9 (€000 x 180), which reduces these costs to €000.
The adjustment gives a gross margin of €300 – €000 = €171 and an operating margin of €000 – €129 = €000.
The operating margin would therefore be €59.
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To increase profitability without changing turnover, VertInnovation could optimize production costs, adopt more efficient energy solutions, or even integrate recycled or less expensive materials.
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Sustainability strategies increase operating margin by lowering long-term costs through energy efficiency, reducing the need for expensive raw materials, and improving brand image that can attract more customers.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Reduction of variable costs | Variable costs x Reduction percentage |
Application: Biopharmaceuticals
States :
BioFarmaceutique operates in the healthcare sector with a range of environmentally friendly medicines. They want to examine the efficiency of their operations based on the results of the last financial year. To do this, they have noted a turnover of €1, variable costs of €200, and fixed costs of €000.
Work to do :
- Calculate the gross margin of BioFarmaceutique.
- Determine the available operating margin.
- If the company reduces its fixed costs by 10%, what effect will this have on the operating margin?
- Analyze how a 25% increase in revenue impacts gross margin.
- Consider the potential implications of this performance for future R&D investments.
Proposed correction:
-
Gross margin is obtained by subtracting variable costs from revenue.
Formula: Gross margin = Revenue – Variable costs
Replacing: €1 – €200 = €000.
The gross margin is €500. -
Operating margin is calculated by removing fixed costs from gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €500 – €000 = €350.
The available operating margin is €150. -
A 10% reduction in fixed costs represents €35 (€000 x 350), reducing these costs to €000.
This changes the operating margin to €500 – €000 = €315.
The operating margin therefore increases to €185 after this reduction.
-
A 25% increase in turnover brings it to €1.
Therefore, the new gross margin will be €1 – €500 = €000.
The impact on the gross margin is therefore an increase of €300. -
Favorable performance in financial efficiency, through a higher operating margin, can encourage BioFarmaceutique to invest in research and development. This strategy can lead to the expansion of the product portfolio, thereby strengthening the company's competitive position.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Reduction of fixed costs | Fixed costs x Reduction percentage |
Application: RestoCourier
States :
RestoCourier, a meal delivery company, wants to evaluate its profitability over the previous quarter. They have a turnover of €400, variable costs of €000, and fixed costs of €220.
Work to do :
- What is RestoCourier's gross margin?
- Calculate the quarterly operating margin.
- If variable costs are reduced by 15%, what will happen to the new operating margin?
- Compare the impact on gross margin of a 30% increase in revenue to maintaining costs.
- Discuss cost reduction strategies applicable to RestoCourier to improve profitability.
Proposed correction:
-
Gross margin is calculated by subtracting variable costs from revenue.
Formula: Gross margin = Revenue – Variable costs
Replacing: €400 – €000 = €220.
RestoCourier's gross margin is €180. -
Operating margin is determined by subtracting fixed costs from gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €180 – €000 = €120.
The quarterly operating margin is €60. -
A 15% reduction in variable costs corresponds to €33 (€000 x 220) reducing these costs to €000.
The new gross margin becomes €400 – €000 = €187, and therefore a new operating margin of €000 – €213 = €000.
The operating margin would therefore be €93.
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A 30% increase in turnover brings the latter to €520, while variable costs remain at €000.
The gross margin would then be €520 – €000 = €220.
This gross margin would increase by €120. -
RestoCourier can increase profitability by optimizing logistics to reduce costs, negotiating with suppliers for preferential rates, and improving planning to limit unnecessary operational costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Reduction of variable costs | Variable costs x Reduction percentage |
Application: EduTech Innov
States :
EduTech Innov, a company specializing in the development of educational software, wants to measure the performance of its recent sales. For this quarter, the turnover reached €600, variable costs amounted to €000, and fixed costs stabilized at €340.
Work to do :
- What is the gross margin of sales made by EduTech Innov?
- Calculate their operating margin during the quarter.
- What impact would an 8% increase in fixed costs have on operating margin?
- What happens to gross margin if revenue is increased by 20% with no change in variable costs?
- How can EduTech Innov use technology to maximize its operating margin?
Proposed correction:
-
Gross margin is calculated by subtracting variable costs from revenue.
Formula: Gross margin = Revenue – Variable costs
Replacing: €600 – €000 = €340.
The gross margin on sales is €260. -
Operating margin is found by subtracting fixed costs from gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €260 – €000 = €180.
The operating margin for the quarter is €80. -
With an 8% increase in fixed costs corresponding to €14 (€400 x 180), the new fixed costs become €000.
This brings the operating margin to €260 – €000 = €194.
The operating margin is reduced to €65.
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The 20% increase in turnover would bring the latter to €720, leaving variable costs unchanged at €000.
The gross margin thus increases to €720 – €000 = €340.
Thus, the gross margin would increase by €120. -
EduTech Innov could maximize its operating margin with technology by automating repetitive operations, adopting data analytics tools to optimize product development, and reducing sales cycles through improved online user experience.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Increase in fixed costs | Fixed costs x Percentage increase |
App: Urban GreenSpaces
States :
Urban GreenSpaces, a company specializing in the development of urban parks, wants to analyze its annual financial performance. The company has a turnover of €950, with variable costs of €000 and fixed costs of €500.
Work to do :
- How do you calculate Urban GreenSpaces gross margin?
- What is the company's annual operating margin?
- Calculate the impact of a 10% increase in variable costs on operating margin.
- Analyze the impact on gross margin if variable costs are reduced by 5%.
- Explain how strategic planning can positively impact operating margins in the urban development industry.
Proposed correction:
-
Gross margin is calculated by subtracting variable costs from sales.
Formula: Gross margin = Revenue – Variable costs
Replacing: €950 – €000 = €500.
The gross margin is therefore €450. -
Operating margin is obtained by removing fixed costs from gross margin.
Formula: Operating margin = Gross margin – Fixed costs
Replacing: €450 – €000 = €300.
The annual operating margin is €150. -
A 10% increase in variable costs is of the order of €50 (€000 x 500), which brings these costs to €000.
The new gross margin would be €950 – €000 = €550.
This gives an operating margin of €400 – €000 = €300.
There is a reduction of €50 in the operating margin.
-
A 5% reduction in variable costs saves €25 (€000 x 500), bringing them down to €000.
The gross margin then becomes €950 – €000 = €475.
This results in an increase of €25 in gross margin. -
Effective strategic planning, such as optimizing construction processes or negotiating lower-cost supplies, can improve operating margins in urban development by reducing costs and improving delivery times, thereby increasing the company's competitiveness.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover – Variable costs |
| Operating margin | Gross Margin – Fixed Costs |
| Reduction/increase of variable costs | Variable costs x Percentage of change |