Enter the operating expenses ($) and the sales ($) into the Operating Ratio Calculator. The calculator will evaluate and display the Operating Ratio. 

Operating Ratio Formula

The following formula is used to calculate the Operating Ratio. 

OPR = E / S * 100
  • Where OPR is the Operating Ratio (%)
  • E is the operating expenses ($) 
  • S is the sales ($) 

To calculate the operating ratio, divide the operating expenses by the total sales.

How to Calculate Operating Ratio?

The following example problems outline how to calculate Operating Ratio.

Example Problem #1:

  1. First, determine the operating expenses ($).
    • The operating expenses ($) is given as: 300.
  2. Next, determine the sales ($).
    • The sales ($) is provided as: 1000.
  3. Finally, calculate the Operating Ratio using the equation above: 

OPR = E / S * 100

The values given above are inserted into the equation below and the solution is calculated:

OPR = 300 / 1000 * 100 = 30.00 (%)

FAQ

What is the significance of the Operating Ratio in business analysis?

The Operating Ratio is a financial metric that helps in assessing a company’s operational efficiency by comparing its operating expenses to its total sales. A lower ratio indicates a higher profitability and operational efficiency, making it a crucial tool for investors, analysts, and business owners to evaluate a company’s financial health and performance over time.

Can the Operating Ratio be used to compare companies in different industries?

While the Operating Ratio can provide valuable insights into a company’s efficiency, comparing ratios across different industries may not always be relevant due to the varying nature of operating expenses and sales structures. It is more useful to compare companies within the same industry or sector for a more accurate analysis of operational efficiency.

How can a company improve its Operating Ratio?

A company can improve its Operating Ratio by either increasing its sales while keeping operating expenses constant or by reducing its operating expenses without significantly impacting sales. Strategies may include optimizing operational processes, reducing waste, negotiating better terms with suppliers, or increasing sales through marketing and product development initiatives.