Operating net profit ratio is calculated by
dividing the operating net profit by sales. This ratio helps in determining the
ability of the management in running the business.Formula:
Operating profit ratio = (Operating profit / Net sales) ×
100
Operating profit = Gross profit - Operating Expenses
OR
Operating profit = Net sales -
Operating cost
OR
Operating profit= Net sales - (Cost of goods
sold + Administrative and office expenses + Selling and distribution exp.)
OR
(Net profit + Non-operating
expenses) - (Non-operating incomes)
Higher the ratio, better it is
Example:
|
Particulars |
$ |
Particulars |
$ |
| Sales less returns |
4,00,000 |
Selling expenses |
25,000 |
| Gross profit |
1,40,000 |
Income from investment |
1,000 |
| Administration
expenses |
35,000 |
Loss on account of
fire |
2,000 |
Solution:
Operating profit = Gross profit
- Administration and selling expenses
= 1,40,000 - (35,000 + 25,000)
= 1,40,000 - 60,000
= $80,000
Operating profit ratio = (80, 000
/ 4,00,000) × 100
= 20 % |
