Operating Ratio

The operating ratio is a financial metric that measures a company's operational efficiency by comparing its operating expenses to its net sales. It is calculated by dividing total operating expenses by net sales and is expressed as a percentage. A lower operating ratio indicates that a company is managing its operating costs well and is more efficient in generating revenue. It is commonly used in industries like transportation and utilities.

Example

A transportation company with $500,000 in net sales and $350,000 in operating expenses has an operating ratio of 70%, meaning 70% of its sales revenue is used to cover operating costs.