Operating Income Margin

Only those companies that are making good quality products can apply high mark-up for its products, because usually their products are more expensive to make and they require more time to prepare it for the market. These products can be done using more hand work or better materials and so on. Products of a high quality and high operating income company are usually more expensive and the amounts of such product bought will not be so vast. Higher operating income margin helps for the company to earn more profit even if the costs of the product are high. High quality of a product helps to gain the reliance of customers that are more sensitive to the quality rather than price.

If low quality company applies high markup, it doesn't mean that the price of a product will be high. If costs of goods sold are very low the company can earn high mark-up and the price of a product can still be lower than other the same type products in the market. Usually the quality of such products is very low. But if the mark-up is not so high for these products, the company can offer products at a lowest price in the market and sell more of them. Economy of scale helps for such companies to earn good profits and stay in the market with low quality products.

Companies that have higher operating income margins and apply higher mark-ups can offer higher discounts for their products and make it more liquid and attractive for the customers. Higher operating income margin gives a space to vary for the mark-up of a product. If a company applies low mark-up, it cannot offer big discounts, so sometimes if managers want to liquidate the oddment of its products, they have to sell them for the lower price than they really costs and in such way they may suffer loss.

Other aspects of higher than usual mark-up, is brand name. Well-known companies use their brand name to apply higher mark-ups for the products. Usually these companies have high operating income margins. These companies are reliable and respectable in the market, so they have fewer problems with oddments of their goods. Such companies may offer discounts only for special occasions, holiday days, etc., because they don't have problems with demand of their products.

As you can see - operating income margin shows the ability of the company to earn profit from its operations. The mark-up that is used in the company shows if the product is high or low quality and if the company can offer higher discounts without suffering loss. Usually if the company has well-known brand name it has high operating income margin and is more attractive for investors.