Select operating ratio, sales, or operating expenses, then enter the two known values.
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Operating Ratio Formula
The operating ratio shows operating expenses as a percentage of sales. A lower operating ratio usually means a larger share of sales remains after covering operating expenses.
To solve for operating expenses:
To solve for sales:
- OR = operating ratio, as a percentage
- OE = operating expenses, in dollars
- S = sales, in dollars
Select the value to solve for, then enter the other two values. If you enter operating expenses and sales, it calculates the operating ratio. If you enter sales and operating ratio, it calculates operating expenses. If you enter operating expenses and operating ratio, it calculates the amount of sales needed to produce that ratio.
Operating Ratio Interpretation
| Operating Ratio | General Meaning | What It Suggests |
|---|---|---|
| Below 60% | Expenses use less than 60% of sales | More sales dollars remain after operating expenses |
| 60% to 80% | Expenses use 60% to 80% of sales | No universal acceptable range; compare consistent industry definitions |
| 80% to 100% | Expenses use 80% to 100% of sales | Less room remains for profit, interest, taxes, or other costs |
| Above 100% | Operating expenses exceed sales | The business is not covering operating expenses from sales |
Common Inputs for Operating Ratio Calculations
| Input | Use in Formula | Common Notes |
|---|---|---|
| Operating expenses | Numerator | Usually includes costs such as wages, rent, utilities, insurance, and other operating costs |
| Sales | Denominator | Use total sales or revenue for the same period as the operating expenses |
| Operating ratio | Final percentage | Shows how much of each sales dollar is used by operating expenses |
Operating Ratio Examples
Example 1: Calculate operating ratio.
You have operating expenses of $75,000 and sales of $120,000.
The operating ratio is 62.50%.
Example 2: Calculate operating expenses.
You have sales of $200,000 and an operating ratio of 70%.
The operating expenses are $140,000.00.
Operating Ratio FAQ
What is a good operating ratio?
A good operating ratio depends on the industry, but lower is generally better. For example, an operating ratio of 65% means operating expenses use 65 cents of every sales dollar. The remaining 35 cents is available for other costs and profit before considering items outside operating expenses.
Can the operating ratio be over 100%?
Yes. An operating ratio over 100% means operating expenses are greater than sales. For example, if operating expenses are $110,000 and sales are $100,000, the operating ratio is 110%. That means sales are not enough to cover operating expenses.
Should sales and operating expenses be from the same time period?
Yes. Use sales and operating expenses from the same period, such as the same month, quarter, or year. Mixing periods can give a misleading operating ratio.
