This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
Ratio: (Cost of Sales (COS) + Operating Expense) as a percentage of Sales.
Example: The Round Number CompanySales = 200; COS = 80; OpEx = 72 Operating Ratio = (80 + 72) / 200 = 152/200 = 76 % |
(OpEx (Operating Expense) is the after-COS expenses related to normal operation of the business including R&D, advertising, salaries, and rent. Depreciation may, or may not, be included in OpEx.)
The Operating Ratio is a comprehensive measure of a company's operational efficiency.
Lower ratios are generally favorable, indicating better cost management and higher efficiency in generating profit from sales.
The terms Operating Ratio and OpEx Ratio sound similar - but they are different measurements!
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Calculator for Operating Ratio
Calculator for OpEx Ratio
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The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.