Profitability Ratios - Operating Ratio

\[\text{Operating Ratio}=\frac{\text{Cost of Revenue from Operations}+\text{Operating Expenses}}{\text{Revenue from Operations}}\times100\]

                                                                        Or

\[\text{Operating Ratio}=\frac{\text{Cost of Revenue from Operations}+\text{Operating Expenses - Operating Income}}{\text{Revenue from Operations}}\times100\]

1. Cost of Revenue from Operations or Cost of Goods Sold:

Cost of Revenue from Operations = Opening Inventory + Net Purchases + Direct Expenses – Closing Inventory

2. Operating Expenses:

Operating Expenses = Employees' Benefit Expenses + Depreciation and Amortisation Expense + Selling and Distribution Expenses + Office and Administration Expenses, etc. + Discount + Bad Debts + Interest on Short-term Loans

3. Operating Income:

Operating Income = Commission Received + Cash Discount Received