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# Operating Profit Ratio:

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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 %

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