The Vanishing Operating Margin: Expenses Rising Faster than Revenue

[INT. 221B BAKER STREET – LATE EVENING]
Holmes sat cross-legged, eyes closed, as a fire crackled in the hearth. Watson paced restlessly with an open ledger in his hand.

WATSON: Holmes, this firm reported a 25% revenue increase, yet their operating margin has declined. I’m utterly baffled.

HOLMES: My dear Watson, revenue may rise, but if expenses sprint, margins vanish faster than Moriarty at Scotland Yard.

🔍 The Curious Case of the Disappearing Margin

On the surface, a company might appear to be growing — top-line revenue is up, the investor deck is gleaming, and the CEO is grinning on CNBC. But underneath the surface? Expenses are inflating like a Victorian balloon ride.

In forensic finance, the real question is not how much money is coming in — but how much is leaking out through bloated SG&A, erratic R&D, or conveniently classified “Other Operating Costs.”

📊 A Victorian Margin Breakdown

🧨 Red Flags Waving in the Fog

• Expenses growing faster than revenue for 2+ consecutive quarters
• Spike in “Other Operating Expenses” with no detailed disclosure
• Flat headcount but ballooning payroll costs
• R&D spend justified by vague “long-term initiatives”
• SG&A doubling without geographic or business expansion

💡 Live Case: WeWork

In 2018–2019, WeWork posted explosive revenue growth. But operating expenses grew just as rapidly — often faster. Despite $1.8B in revenue, operating losses exceeded $1.6B. Lavish spending on marketing, real estate, and executive perks consumed any hope of profitability. The margin didn’t just vanish — it never existed.

“There is nothing more deceptive than an obvious margin.” – Holmes

🧠 Detective’s Note

The next time you see soaring revenue, don’t be charmed too quickly. Dissect the expense lines, trace the growth of each bucket, and always — always — ask: is the operating margin keeping up?

Red flags rarely wave alone. Where one cost inflates, others follow in silence.