Operating Performance Ratio
Also known as an activity ratio, measures how well a company uses its assets to generate revenue and sales. The ratio compares the total operating expenses to net sales to show how efficiently a company's management keeps costs low while generating revenue. The ratio can also measure how well assets are converted into cash.
The ratio is calculated by dividing the company's total operating costs by its net sales. A higher ratio can indicate that expenses are more than the company's ability to generate revenue, which can be considered inefficient. A relatively low ratio can be considered a good sign because the company's expenses are less than its revenue.
Typically, an operational efficiency ratio of 50% and below is considered good. The ideal operating expense ratio (OER) is between 60% and 80%, although the lower it is, the better.