Operating Ratio measures the relationship between operating costs and revenue from operations. It is expressed as a percentage.
The formula is:
Operating Ratio = Revenue from OperationsOperating Cost×100
where Operating Cost = Cost of Revenue from Operations + Operating Expenses
Calculation of Operating Cost:
Operating Cost = Cost of Revenue from Operations + Selling Expenses + Administrative Expenses
Operating Cost = 1,20,000 + 80,000 + 40,000 = 2,40,000
Calculation of Operating Ratio:
Operating Ratio = 3,40,0002,40,000×100
Operating Ratio = 0.7059 × 100 = 70.59%
The result is a percentage (not "times") because Operating Ratio expresses operating costs as a proportion of sales revenue. A ratio of 70.59% means that for every Rs. 100 of revenue, Rs. 70.59 is spent on operating costs.
Correct Option: 4 (70.59%)