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Simple English definitions for legal terms
operating-cost ratio
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A quick definition of operating-cost ratio:
Operating-Cost Ratio: The operating-cost ratio is a way to measure how much it costs a business to operate compared to how much money it makes. It is calculated by dividing the net sales (the money the business makes after subtracting returns and discounts) by the operating costs (the money the business spends on things like rent, utilities, and salaries). A lower operating-cost ratio means that the business is more efficient and profitable, while a higher ratio means that the business is spending more money to operate than it is making in sales.
A more thorough explanation:
The operating-cost ratio is a financial metric that measures the relationship between a company's net sales and its operating costs. It is calculated by dividing the operating costs by the net sales.
For example, if a company has net sales of $1,000,000 and operating costs of $800,000, the operating-cost ratio would be 0.8 or 80%.
The operating-cost ratio is an important indicator of a company's financial health. A high operating-cost ratio indicates that a company is spending a large portion of its revenue on operating expenses, which can be a sign of inefficiency or poor management. On the other hand, a low operating-cost ratio suggests that a company is able to generate a significant amount of revenue while keeping its operating expenses under control.
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