Microsoft's operating leverage — the opex ratio, two years

mentor: Operating leverage is the pattern behind a rising 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 →: revenue grows faster than the cost of running the business, so a smaller share of each sales dollar is spent on operating the company. You read it in the operating-expense 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 → — operating expenses as a share of revenue — falling over time.

Below are two years of Microsoft's revenue and operating expenses from one 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 current year's ratio, then see how it moved against the prior year restated in the same filing.

Operating-expense 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 → = operating expenses ÷ revenue, for the current fiscal yearDefinitionFiscal yearThe company's own 12-month reporting window — which need not match the calendar. Two filers can both report 'fiscal 2026' over windows months apart, so a shared FY label is not a shared period: honest comparison aligns filers by period-end date, never by the label.Fiscal year = the filer's chosen 12-month window (some retail calendars run 52/53 weeks)Drivers: Year-end choice · Label conventionFull definition →. A ratio that falls year over year is operating leverage — revenue outgrowing operating expenses.