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.

## 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 Profit

Operating Expenses = Administrative Expenses+Selling and Distribution Expenses

It 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: Introduction

2) Profitability Indicator Ratios: Gross Profit Ratio

3) Profitability Indicator Ratios: Operating Profit Ratio

4) Profitability Indicator Ratios: Net Profit Ratio

5) Profitability Indicator Ratios: Return on Capital Employed

6) Profitability Indicator Ratios: Return on Equity

7) Profitability Indicator Ratios: Return on Assets