Question

Which is the correct formula of the following for computing the Operating Ratio:

Options

• `"Operating Cost"/"Revenue from Operations" xx 100`

• `"Revenue from Operations"/"Operating Cost" xx 100`

• `"Operating Cost"/"Cost of Revenue from Operations" xx 100`

• `"Gross Profit"/"Revenue from Operations" xx 100`

Answer 1

`bb("Operating Cost"/"Revenue from Operations" xx 100)`

Explanation:

The Operating Ratio measures a business's operational efficiency by comparing its daily running costs to its net sales. It expresses the total Operating Cost, which includes the cost of goods sold plus operational expenses like selling and administrative costs, as a percentage of the Revenue from Operations. A lower percentage indicates better efficiency, as it means a smaller portion of sales income is being consumed by operational activities.