Operating Ratio

The operating ratio is a financial term defined as a company's operating expenses as a percentage of revenue. This financial ratio is most commonly used for industries which require a large percentage of revenues to maintain operations, such as railroads. In railroading, an operating ratio of 80 or lower is considered desirable.

The operating ratio can be used to determine the efficiency of a company's management by comparing operating expenses to net sales. It is calculated by dividing the operating expenses by the net sales. The smaller the ratio, the greater the organization's ability to generate profit should revenues decrease. The ratio does not factor in expansion or debt repayment.

Other articles related to "ratio, operating ratio":

Water Privatization In Colombia - Impact of Private Sector Participation - Impact On Efficiency
... Cartagena, the World Bank has estimated efficiency gains by comparing the evolution of the ratio of collected revenues to operational costs (operating ratio) on the one hand to that of the average tariff level ... The operating ratio is driven essentially by two factors the evolution of operational costs and collection rates, which are controlled by the private operator, and the ... Whenever the operating ratio increases faster than the tariff, efficiency gains are taking place ...

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