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Operating Profit Ratio

Operating Profit ratio express the relationship between operating profit and sales and calculated as follows:

operating profit ratio

Where Operating Profit = Net Profit + Non-operating expenses - Non-operating Income

Or

=Gross Profit - Operating Expenses


Operating profit ratio can also be calculated with the help of operating ratio as follows:

Operating Profit Ratio = 100 - Operating Ratio

This ratio indicates the portion remaining out of every rupee worth of sales after all operating costs and expenses have been met.it is better the higher ratio.

Operating Ratio

Operating Ratio tells the proportion that the cost of sales bear to sales and calculated as follows:

operating profit ratio

Where Cost of Goods Sold = Opening stock+Purchase+Direct Expenses+Manufacturing Expenses-Closing stock or Sales-Gross Profit

Operating Expenses = Administrative Expenses+Selling and Distribution Expenses

It is better the lower ratio. It is less favourable the higher ratio because it would have a smaller margin of operating profit for the payment of dividends and the creation of reserves.



NEXT - Profitability Indicator Ratios: Net Profit Ratio


Table of Contents
1) Profitability Indicator Ratios: Introduction
2) Profitability Indicator Ratios: Gross Profit Ratio
3) Profitability Indicator Ratios: Operating Profit Ratio
4) Profitability Indicator Ratios: Net Profit Ratio
5) Profitability Indicator Ratios: Return on Capital Employed
6) Profitability Indicator Ratios: Return on Equity
7) Profitability Indicator Ratios: Return on Assets

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