NVIDIA's operating margin — the leverage read

mentor: Two lessons taught the same machine from different ends: the opex ratioDefinitionOperating leverageThe pattern behind a widening operating margin: revenue growing faster than the cost of running the business. You read it in the operating-expense ratio — operating expenses as a share of revenue — falling over time, so each incremental sales dollar carries more of itself down to operating income.Opex ratio = Operating expenses ÷ Revenue (falling ratio year over year = operating leverage)Drivers: Revenue growth · Cost structure · Investment cyclesFull definition → reads what running the company costs as a share of revenue, and the margin bridge walks gross profit down to the operating line. The operating marginDefinitionOperating marginOperating income as a share of revenue — what remains after both the direct cost of sales and the operating expenses (R&D, sales & marketing, G&A) that run the business. It measures how much of the gross margin survives the cost of operating the company.Operating margin = Operating income ÷ RevenueDrivers: Gross margin · Opex leverage · One-time itemsFull definition → joins them — gross marginDefinitionGross marginThe share of each revenue dollar left after the direct cost of producing what was sold. It is the first read on pricing power and production efficiency, and the starting point of every margin analysis.Gross margin = Gross profit ÷ Revenue = (Revenue − Cost of revenue) ÷ RevenueDrivers: Price · Cost · Volume · MixFull definition → sets the ceiling, and the operating-expense share decides how much of it survives.

Below are NVIDIA's own figures from its latest annual reportDefinitionForm 10-KThe audited annual report a US public company files with the SEC — the most complete single document about a business: audited financial statements, management's discussion, risk factors, and the auditor's own opinion. It is the primary source nearly every figure on Echelon grounds to.One 10-K = audited statements + MD&A + risk factors + auditor's reportDrivers: Assurance · Cadence · Restated comparativesFull definition → (Form 10-K), via SEC EDGAR. Compute the operating marginDefinitionOperating marginOperating income as a share of revenue — what remains after both the direct cost of sales and the operating expenses (R&D, sales & marketing, G&A) that run the business. It measures how much of the gross margin survives the cost of operating the company.Operating margin = Operating income ÷ RevenueDrivers: Gross margin · Opex leverage · One-time itemsFull definition →, then read the gap between it and the gross marginDefinitionGross marginThe share of each revenue dollar left after the direct cost of producing what was sold. It is the first read on pricing power and production efficiency, and the starting point of every margin analysis.Gross margin = Gross profit ÷ Revenue = (Revenue − Cost of revenue) ÷ RevenueDrivers: Price · Cost · Volume · MixFull definition → as an expense share — the drivers, not the definition.

Operating marginDefinitionOperating marginOperating income as a share of revenue — what remains after both the direct cost of sales and the operating expenses (R&D, sales & marketing, G&A) that run the business. It measures how much of the gross margin survives the cost of operating the company.Operating margin = Operating income ÷ RevenueDrivers: Gross margin · Opex leverage · One-time itemsFull definition → = operating income ÷ revenue. The gap below gross marginDefinitionGross marginThe share of each revenue dollar left after the direct cost of producing what was sold. It is the first read on pricing power and production efficiency, and the starting point of every margin analysis.Gross margin = Gross profit ÷ Revenue = (Revenue − Cost of revenue) ÷ RevenueDrivers: Price · Cost · Volume · MixFull definition → is the operating-expense share of revenue.