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. Net Sales

    The amount of sales generated by a company after the deduction ...
  2. Operating Expense

    A category of expenditure that a business incurs as a result ...
  3. Profit Margin

    A ratio of profitability calculated as net income divided by ...
  4. Investment Income Ratio

    The ratio of an insurance company’s net investment income to ...
  5. Asset Turnover Ratio

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

    A measure of what it costs to operate a piece of property compared ...
RELATED FAQS
  1. What metrics can be used to evaluate companies in the railroads sector?

    There are certain metrics that should be used when evaluating any company, regardless of the sector. The rules that govern ... Read Full Answer >>
  2. How are C-suite officers measured on performance?

    Evaluation of C-suite officers, especially the chief executive officer (CEO), is an important element of fundamental analysis. ... Read Full Answer >>
  3. How does economic order quantity assist a company with maximizing profits?

    Economic order quantity can assist a company in maximizing profits because it finds the number of units the company should ... Read Full Answer >>
  4. Why should investors care about the Days Sales of Inventory (DSI)?

    The days sales of inventory measures the value, liquidity and cash flows of a company's inventory, as well as its management ... Read Full Answer >>
  5. Which industries tend to have the most inventory turnover?

    The industries that tend to have the most inventory turnover are those with high volume and low margins, such as retail, ... Read Full Answer >>
  6. How does zero-based budgeting help lower operating costs?

    Zero-based budgeting helps lower costs by reducing unproductive spending. Zero-based budgeting is a rigorous process that ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Ratio Analysis Tutorial

    If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios.
  2. Insurance

    Working Capital Works

    A company's efficiency, financial strength and cash-flow health show in its management of working capital.
  3. Markets

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  4. Personal Finance

    A Primer On The Railroad Sector

    The railroad industry might seem antiquated, but it remains an important service that reaches all corners of the country.
  5. Investing

    Doing More With Less: The Sales-Per-Employee Ratio

    If used properly, this ratio can give you insight into a company's productivity and financial health.
  6. Fundamental Analysis

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center