# Operating Ratio Calculator

## About Operating Ratio Calculator (Formula)

An Operating Ratio Calculator is a tool used to assess the efficiency of a company’s operations by measuring the ratio of operating expenses to net sales revenue. The operating ratio is a critical financial metric that helps businesses evaluate their ability to control costs and generate profits from core operational activities.

The formula for calculating the operating ratio is:

Operating Ratio = (Operating Expenses / Net Sales) × 100

Where:

• Operating Ratio is the percentage of operating expenses relative to net sales revenue.
• Operating Expenses represent the total costs associated with the company’s day-to-day operations.
• Net Sales is the total revenue generated from sales after deducting returns, allowances, and discounts.

To use the Operating Ratio Calculator formula, follow these steps:

1. Determine the total operating expenses of the company.
2. Determine the net sales revenue, which is the total revenue generated from sales after adjustments.
3. Plug the values of operating expenses and net sales revenue into the formula: Operating Ratio = (Operating Expenses / Net Sales) × 100.
4. Calculate the operating ratio. The result represents the percentage of operating expenses in relation to net sales.

A low operating ratio indicates that a company is efficiently managing its operating expenses and generating healthy profits from its core activities. Conversely, a high operating ratio suggests that a significant portion of the company’s revenue is being consumed by operating expenses, which can impact profitability.

The operating ratio is particularly useful for comparing a company’s performance over time, against industry peers, or against industry benchmarks. It provides insights into operational efficiency and highlights areas where cost control measures or revenue growth strategies might be needed.