Operating Ratio

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DEFINITION of 'Operating Ratio'

A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:

Operating Ratio

INVESTOPEDIA EXPLAINS 'Operating Ratio'

The smaller the ratio, the greater the organization's ability to generate profit if revenues decrease. When using this ratio, however, investors should be aware that it doesn't take debt repayment or expansion into account.

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