What is Operating Ratio?

Operating Ratio is an accounting ratio that describes the relationship between a company’s cost of revenue from the operation and operating expenses to its revenue from operations. 

The main objective of all the business units is to earn profit. The efficiency of the business can be measured by the profitability of the business. The operating ratio is a type of profitability ratio. It is the comparison of  Operating Cost (cost of revenue from operation + operating expenses) is the sum total of all the expenses that are incurred in the operating activities of the business. All the non-operating incomes like interest received on investment, profit from the sale of fixed assets, rent received, etc., and all the non-operating expenses like interest on long-term loans and debentures, loss on sale of fixed assets, income tax, dividend paid, etc., are excluded in calculating Operating Ratio.