Monday, April 13, 2009

Operating Expense to Sales Ratio

The Operating Expense to Sales Ratio displays in a ratio format a company's operating expenses as a percent of its total net revenues, most often per quarter.

Formula for the  Operating Expense to Sales Ratio 
Total Overhead Cash Expense / Net Revenues

This ratio is  considered a measure of the total overhead used in the manufacturing firm per net sales revenue dollar

The most important information revealed by this formula is the efficiency of a company's overall cost structure and it also indicates the ability of its business operations to convert income to profit.

For example, a company experiencing larger and more stable cash flows can sustain a higher operating expense to sales ratio than a smaller company with much less stable operations. 

Management can use the information gained from this ratio in order to manage cost and ensure the long term profitabilty of a company. 

Other Financial Ratios:

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The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.