# Operating Profit Ratio

Operating Profit ratio express the relationship between operating profit and sales and calculated as follows:** Where Operating Profit = Net Profit + Non-operating expenses - Non-operating Income Or =Gross Profit - Operating Expenses**

Operating profit ratio can also be calculated with the help of operating ratio as follows:

**Operating Profit Ratio = 100 - Operating Ratio**

This ratio indicates the portion remaining out of every rupee worth of sales after all operating costs and expenses have been met.it is better the higher ratio.

This ratio indicates the portion remaining out of every rupee worth of sales after all operating costs and expenses have been met.it is better the higher ratio.

## Operating Ratio

**Operating Ratio tells the proportion that the cost of sales bear to sales and calculated as follows: **

**Where Cost of Goods Sold = Opening stock+Purchase+Direct Expenses+Manufacturing Expenses-Closing stock or Sales-Gross ProfitOperating Expenses = Administrative Expenses+Selling and Distribution ExpensesIt is better the lower ratio. It is less favourable the higher ratio because it would have a smaller margin of operating profit for the payment of dividends and the creation of reserves.**

**NEXT - Profitability Indicator Ratios: Net Profit Ratio****Table of Contents****1) Profitability Indicator Ratios: Introduction2) Profitability Indicator Ratios: Gross Profit Ratio3) Profitability Indicator Ratios: Operating Profit Ratio4) Profitability Indicator Ratios: Net Profit Ratio5) Profitability Indicator Ratios: Return on Capital Employed6) Profitability Indicator Ratios: Return on Equity7) Profitability Indicator Ratios: Return on Assets**