Operating Ratio

AAA

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.

RELATED TERMS
  1. Operating Expense

    A category of expenditure that a business incurs as a result ...
  2. Net Sales

    The amount of sales generated by a company after the deduction ...
  3. Profit Margin

    A ratio of profitability calculated as net income divided by ...
  4. Asset Turnover Ratio

    The amount of sales generated for every dollar's worth of assets. ...
  5. Operating Expense Ratio - OER

    A measure of what it costs to operate a piece of property compared ...
  6. Accounts Receivable Aging

    A periodic report that categorizes a company's accounts receivable ...
Related Articles
  1. Ratio Analysis Tutorial
    Fundamental Analysis

    Ratio Analysis Tutorial

  2. Working Capital Works
    Insurance

    Working Capital Works

  3. A Look At Corporate Profit Margins
    Markets

    A Look At Corporate Profit Margins

  4. A Primer On The Railroad Sector
    Personal Finance

    A Primer On The Railroad Sector

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center