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The Operating Expense Ratio is typically viewed as a measurement of management efficiency. This is because management usually has greater control over operating expenses than they do over revenues.
The Operating Expense Ratio is calculated as:
Operating Expenses / Net Sales
When viewed over time, the Operating Expense Ratio can tell you if management can expand operations without dramatically increasing expenses. For example, if sales were to expand from year-to-year and the Operating Expense Ratio goes down. This would mean that sales increased, and operating expense went down at an even faster rate. This would be a very positive situation from a net income standpoint. |
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