Editing Operating ratio

{{Short description|Operating expenses as percent of revenue}}
In finance, the '''operating ratio''' is a company's [[operating expense]]s as a percentage of [[revenue]]. This [[financial ratio]] is most commonly used for industries which require a large percentage of revenues to maintain operations, such as [[railroad]]s.<ref>{{cite book|url=https://books.google.com/books?id=lsr0GFcltdYC&dq=%22operating+ratio%22&pg=PA56 |page=56|isbn=978-0-7546-7134-3|publisher=Ashgate Publishing|year=2007|last=Morrell|first=Peter S.|title=Airline Finance}}</ref> In railroading, an operating ratio of 80 or lower is considered desirable.

The operating ratio can be used to determine the efficiency of a company's management by comparing operating expenses to [[sales (accounting)|net sales]]. It is calculated by dividing the operating expenses by the net sales. The smaller the ratio, the greater the organization's ability to generate [[profit (accounting)|profit]]. The ratio does not factor in expansion or debt repayment.<ref>[http://www.investopedia.com/terms/o/operatingratio.asp Operating ratio]. Investopedia.</ref>

Alternatively, it may be expressed as a ratio of sales to cost. In such case, a higher ratio indicates a better ability to generate revenue.<ref>[http://www.investorwords.com/3466/operating_ratio.html Operating Ratio]. InvestorWords.</ref>

==See also==
*[[Farebox recovery ratio]]

==References==
{{reflist}}

[[Category:Corporate finance]]
[[Category:Financial ratios]]


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