The expense can be an individual expense or a group of expenses like cost of goods sold, labor costs, material expenses, administrative expenses, or sales and distribution expenses. Determine the cost percentages. The ratio is expressed in percentage. S1 is the net sales for the prior period . where . For example, say your real estate business has operating expenses of \$200,000 and effective gross income of \$285,000. S2 is the net sales for the current period . An Increase in operating margin might reflect a higher gross profit margin and/or better control of operating costs. On its own, this number doesn’t mean much. The formula for this ratio is simple. Multiply the result by 100 to get the percent sales growth. Let’s take a look at an example. This ratio can be calculated from the following formula: Operating cash flow / Sales Ratio = Operating Cash Flows / Sales Revenue x 100%. If your operating profit for the period was \$40,000 on revenue of \$200,000, your operating margin equals 0.2, or 20 percent. Operating expenses are different from the cost of sales because operating expenses cannot be linked directly to the production of the products or services a company sells. Using the expense ratio formula stated above, the expense ratio derived from the sample operating expanse and net sales numbers is 50 percent (\$45,000 / \$90,000 x … But, calculated as a percentage of sales, it becomes far more useful: Prime Cost Percentage = Prime Cost ÷ Total Sales. It is computed by dividing a particular expense or group of expenses by net sales. The operating expense ratio is a measure of your operation’s financial efficiency and shows how much you spend to generate income. This means you converted 20 percent of revenue into operating profit. It is also known as an expenses-to-sales ratio. A restaurant has total sales of \$2500. Operating profit percentage is the difference between sales revenues, cost of goods sold and other operating expenses divided by total sales. Formula: The numerator may be an individual expense or a group of […] Below is a formula for how to calculate sales growth: G = (S2 – S1)/S1 * 100 . For example, if February sales are \$65,000, then your prime cost is 0.49 or 49% (\$32,000 ÷ \$65,000 x 100). The food cost was \$1000, labour cost was \$850, and overhead was \$650. It takes into account both the production and income side, as well as the expense side, to paint a clear picture of your operation’s efficiency. You simply divide each particular income amount by the net sales, or revenue shown. The operating expense ratio is \$200,000 divided by \$285,000, or 70 percent. Your prime cost will now be \$32,000 (\$7,000 plus \$25,000). The figure for operating cash flows can be found in the statement of cash flows. Expense ratio is expressed in percentage. 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