If an organization's non operating and operating activities are profitable in a given year, which statement is most correct?

• A. Total margin will be greater than operating margin.
• B. Operating margin will be greater than total margin.
• C. Total margin equals operating margin.
• D. Non-operating income has no effect on total margin.

Answer: (A)

Total margin includes all sources of income, while operating margin reflects profit from core operations only. When both operating and non-operating activities are profitable, the bottom-line profitability (net income) increases from the non-operating side, and total revenue also grows with any non-operating revenue. The net effect is that the overall margin—net income divided by total revenue—tends to be higher than the margin from operations alone.

For example, if operating revenue is 100 with an operating income of 15 (operating margin of 15%), and there is 10 in non-operating revenue plus 5 in non-operating income, total revenue becomes 110 and net income is 20, giving a total margin of about 18%. This illustrates how profitable non-operating activities can lift total margin above operating margin. Non-operating income does affect total margin, so the statement that non-operating income has no effect is incorrect, and the other options don’t fit when both sides are positive.