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CBSE Class 12-commerce Answered

How to calculate operating ratio with operating cost gross profit and operating expenses
Asked by gamerrocky00 | 07 Jan, 2020, 10:05: PM
answered-by-expert Expert Answer
Understanding Operating Ratio:
  1. It is a relationship between Operating Costs and Revenue from Operations. 
  2. It is the proportion of Cost of Revenue from Operations and Operating Expenses to Revenue from Operations. 
  3. It helps in assessing the operational efficiency of an entity.
  4. It shows the percentage of Revenue from Operations that is absorbed by the Cost of Revenue from Operations and Operating Expenses.
  5. A low operating ratio is better because it leaves higher profit margin to meet non-operating expenses, pay dividend, etc. On the other hand, a high operating ratio indicates decline in efficiency.
  6. It is expressed in percentage
  7. Formula:  
      Operating Ratio = (Operating Cost / Revenue from Operations) x 100
 
Answered by Surabhi Gawade | 08 Jan, 2020, 09:05: AM

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