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Tuesday, April 19, 2011

Operating Ratio Formula & Example

Definition: Operating ratio is the ratio of cost of sales plus operating expenses to net turnover. It is an indicator of the operational efficiency of a business, a low operating ratio indicates high operating profit.

Formula:
Operating Ratio = [(Cost of sales + Operating expenses) / Net sales] * 100%

Example 1:
Calculate operating ratio given the following figures:
Cost of sales is $300,000,

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