An Example of Calculating Operating Profit Margin Ratio . Net sales are the total amount of sales the company has generated over the past year after subtracting any discounts, damages, returns, or other losses taken. General and administrative expenses are the overhead costs involved in executing the sales. operating profit ratio is a type of profitability ratio which is expressed as a percentage.. Net sales include both Cash and Credit Sales, on the other hand, Operating Profit is the net operating profit i.e. Its cost of goods sold and operating expenses equal $15.4 million. (212) 419-8286 Mathematically, it is represented as, Calculating the percentage of sales to expenses is commonly referred to as the percentage of sales method.This method is used by business owners and employees within a business who create budgets to determine if the ratio of expenses to sales is appropriate. Another ratio you can derive from operating costs is the operating expense ratio (OER). It is a very popular ratio to use in real estate, such as with companies that rent out units. Sales to Administrative Expenses Ratio = Net Sales / General and Administrative Expenses. Operating Expense Ratio. The operating income for the year would be $452,000. Operating Ratio = (Cost of Goods Sold + Operating Expenses) / Total Revenue. It is also called the operating cost ratio or operating expense ratio. Operating profit ratio establishes a relationship between operating Profit earned and net revenue generated from operations (net sales). A low OER means less money from income is being spent on operating expenses. For instance, when the costs total $30,000 and sales are $60,000, the cost-to-sales ratio will be 50%. Operating Profit Ratio. A company has gross sales of $20 million. Improved productivity from the manufacturing may also impact the cost-to-sales ratio. Operating income = Total revenues – operating expenses. Relevance and Uses of Operating Ratio Formula. 50% = $30,000 / $60,000. The operating expense ratio (OER) is the cost to operate a piece of property compared to the income the property brings in. So imagine that a company earned $552,000 in revenue last year and has $100,000 in OPEX. Try our corporate solution for free! Note that operating expenses only refers to the standard day-to-day costs of running the business – it doesn’t include things like significant capital investments. Operating Ratio = (Operating Expenses+Cost of Goods Sold)/Net Sales = (18575+92761)/121615 =0.914739; Advantages of Operating Ratio. Operating expense ratio. This statistic shows the operating expenses as percentage of sales of major sportswear brands in China in 2017. It is important to understand the concept of operating ratio because it is used to evaluate the ability of the company’s management to generate sales while controlling its operating expenses in the process. To calculate your Opex-to-Sales ratio, you’ll need to divide your total operating expenses by net sales figures. Within a time period inflation, while expenses are increasing, the cost-to-sales ratio may raise as it is more costly to generate sales. The operating ratio formula is the ratio of the company’s operating expenses to net sales, where operating expenses include administrative expenses, selling and distribution expenses, cost of goods sold, salary, rent, other labor costs, depreciation, etc. The formula for the operating expense can be simply expressed as summation of various selling, general and administrative (SG&A) expenses like office staff salaries, sales commissions, promotional & advertising cost, rental expense, utilities, etc. The cost-to-sales ratio is being spent on operating expenses ) / total revenue cost-to-sales ratio may raise as is. Time period inflation, while expenses are the overhead costs involved in executing sales. 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