Overhead Ratio


DEFINITION of 'Overhead Ratio'

A comparison of operating expenses and total income that is not directly related to the production of a good or service. A firm's operating expenses are expenditures that result from normal, day-to-day business operations. Operating expenses include advertising, office rent, professional fees, utilities, insurance, machinery maintenance, depreciation or plants or machinery, etc.

Overhead ratio = Operating Expenses / (taxable net interest income + operating income)

BREAKING DOWN 'Overhead Ratio'

Overhead ratio is a metric that allows companies to evaluate expenses as a percentage of income. In general, a company strives to achieve the lowest operating expenses possible without sacrificing its goods and/or services or competitiveness within the industry. Cutting expenses has a positive effect on the overhead ratio; however, a company must balance these cuts with maintaining the quality of business.

  1. Applied Overhead

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  2. Overhead Rate

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  3. Applied Cost

    A term used in cost accounting to denote the cost assigned to ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  5. Accounting Method

    The method by which income and expenses are reported for taxation ...
  6. Operating Expense

    A category of expenditure that a business incurs as a result ...
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