This ratio provides business with an insight into how expensive it is to run their operation.

It is calculated as follows:

Operating Expenses / Sales Revenue X 100

Operating Expenses are the sum of all the running expenses.  

The lower the ratio the better performing the business.  The information can be easily gathered from the business accounting records and could be compared on a monthly basis.

Care must be given to not include Capital Expenditure as opposed to Operating Expenses in the calculation.  Also one off expenditure or revenue should not be included as you are trying to compare like with like.

Operating expenses would include items such as: Sales and Marketing Costs; Staffing costs; Administrative Costs; depreciation costs.

Capital expenses would include items such as: Costs for Plant and Equipment; Costs for Building; Costs for Vehicles.    

If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email  admin@mcnamaraandco.com

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