Question

a company is having operating ratio equals to 80%.find out it's operating profit ratio. ​

Answer 1

Answer:

Explanation:

Operating profit ratio = (Operating profit / Net sales) × 100

Operating profit = Gross profit - Operating Expenses

OR

Operating profit = Net sales - Operating cost

OR

Operating profit= Net sales - (Cost of goods sold + Administrative and office expenses + Selling and distribution exp.)

OR

(Net profit + Non-operating expenses) - (Non-operating incomes)

Higher the ratio, better it is

Example:

Particulars

$  

Particulars

$

Sales less returns  4,00,000 Selling expenses 25,000

Gross profit  1,40,000 Income from investment 1,000

Administration expenses  35,000 Loss on account of fire 2,000

Solution:

Operating profit = Gross profit - Administration and selling expenses

= 1,40,000 - (35,000 + 25,000)

= 1,40,000 - 60,000

= $80,000

Operating profit ratio = (80, 000 / 4,00,000) × 100

= 20 %