Incremental operating margin
The incremental operating margin is like playing with Legos. You have a bunch of Legos - let's call them revenue - and you want to build something cool, like a spaceship or a castle. But, you need more Legos to finish it! So you go buy some more Legos - let's call them expenses - to finish building your cool creation.
Now, imagine you made a spaceship and it took 100 Legos to build it. You sold your first spaceship for $100 - this is your first revenue. You had to spend $80 to buy the Legos to build it, so you made $20 in profit.
Now, someone else wants a spaceship too and is willing to pay $120 for it. You still need 100 Legos to build it, but this time you can get them for a cheaper price - let's say $70. So, you spent $70 to make the spaceship and sold it for $120 - this is your second revenue. You made $50 in profit this time!
The incremental operating margin is the amount of profit you made from the second spaceship compared to the first spaceship. In our example, it's $50 - $20 = $30. It's like asking "how much more money did you make from the second spaceship compared to the first spaceship?"
In business terms, incremental operating margin is the amount of profit a company makes from selling an additional unit of its product or service. It takes into account the additional expenses incurred to produce that unit. Basically, it measures how much a company is earning from each additional sale it makes.
Now, imagine you made a spaceship and it took 100 Legos to build it. You sold your first spaceship for $100 - this is your first revenue. You had to spend $80 to buy the Legos to build it, so you made $20 in profit.
Now, someone else wants a spaceship too and is willing to pay $120 for it. You still need 100 Legos to build it, but this time you can get them for a cheaper price - let's say $70. So, you spent $70 to make the spaceship and sold it for $120 - this is your second revenue. You made $50 in profit this time!
The incremental operating margin is the amount of profit you made from the second spaceship compared to the first spaceship. In our example, it's $50 - $20 = $30. It's like asking "how much more money did you make from the second spaceship compared to the first spaceship?"
In business terms, incremental operating margin is the amount of profit a company makes from selling an additional unit of its product or service. It takes into account the additional expenses incurred to produce that unit. Basically, it measures how much a company is earning from each additional sale it makes.