# Operating ratio

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In finance, the **operating ratio** is a company's [operating expenses](/source/Operating_expense) as a percentage of [revenue](/source/Revenue). This [financial ratio](/source/Financial_ratio) is most commonly used for industries which require a large percentage of revenues to maintain operations, such as [railroads](/source/Railroad).[1] 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](/source/Sales_(accounting)). 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](/source/Profit_(accounting)). The ratio does not factor in expansion or debt repayment.[2]

Alternatively, it may be expressed as a ratio of sales to cost. In such case, a higher ratio indicates a better ability to generate revenue.[3]

## See also

- [Farebox recovery ratio](/source/Farebox_recovery_ratio)

## References

1. Morrell, Peter S. (2007). [*Airline Finance*](https://books.google.com/books?id=lsr0GFcltdYC&dq=%22operating+ratio%22&pg=PA56). Ashgate Publishing. p. 56. ISBN 978-0-7546-7134-3.

1. [Operating ratio](http://www.investopedia.com/terms/o/operatingratio.asp). Investopedia.

1. [Operating Ratio](http://www.investorwords.com/3466/operating_ratio.html) [Archived](https://web.archive.org/web/20140204062918/http://www.investorwords.com/3466/operating_ratio.html) 2014-02-04 at the Wayback Machine. InvestorWords.

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