Operating Expense Ratio is calculated as:
Operating Expense Ratio = Net SalesOperating Expenses×100
Both components of this ratio - Operating Expenses and Net Sales - are derived from the Income Statement (Trading and Profit & Loss Account).
Classification of Ratios:
Income Statement Ratios: Both items are from the Income Statement
- Examples: Gross Profit Ratio, Net Profit Ratio, Operating Ratio, Operating Expense Ratio
Balance Sheet Ratios: Both items are from the Balance Sheet
- Examples: Current Ratio, Debt-Equity Ratio, Proprietary Ratio
Mixed Ratios: One item from Income Statement and one from Balance Sheet
- Examples: Return on Investment, Inventory Turnover Ratio, Debtors Turnover Ratio
Since both Operating Expenses and Net Sales appear in the Income Statement, Operating Expense Ratio is classified as an Income Statement Ratio.