What is Operating Ratio ll How to calculate Operating Ratio, Net Revenue, Excess Shortfall.

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The operating ratio is used to determine how much it costs to run a business compared to how much money it brings in. Formula: Operating Ratio = (Cost of Revenue from Operations + Operating Expenses)/(Cost of Revenue from Operations). Net Revenue from Operations ×100.

What Is the Operating Ratio? The operating ratio shows the efficiency of a company's management by comparing the total operating expense (OPEX) of a company to net sales. The operating ratio shows how efficient a company's management is at keeping costs low while generating revenue or sales.

Operating Ratio is an accounting ratio that describes the relationship between a company's cost of revenue from the operation and operating expenses to its revenue from operations. The main objective of all the business units is to earn profit.

A higher ratio would indicate that expenses are more than the company's ability to generate sufficient revenue and may be considered inefficient. Similarly, a relatively low ratio would be considered a good sign as the company's expenses are less than that of its revenue.

Operating expenses include cost of goods sold, selling, general and administrative costs, depreciation, and other operating costs. An operating ratio of less than 100% means the company is generating operating profits, while a ratio above 100% indicates operating losses.

Operating profit margin is a measure of a company's profitability from its core operations, and it is calculated by dividing the operating profit by the revenue. If a company's operating expenses are greater than its operating revenue, then the operating profit margin will be negative.

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