Answers the Question
How much are we spending for each dollar of income?
Calculator for Operating Expense Ratio
What Is the Operating Expense Ratio?
This formula looks at the ongoing cost per dollar of revenue.
Typically, lower values are better because lower ratios means that fewer dollars are necessary for each unit of income.
It is sometimes abbreviated as OER.
Why Is it Important?
- Using this formula for multiple periods may demonstrate increasing costs for each dollar earned. Investors should not only be concerned with how income costs to generate, but also if it is increasing or decreasing.
Formula(s) to Calculate Operating Expense Ratio
- OPERATING EXPENSE RATIO = OPERATING EXPENSE / REVENUE
- Forgetting (or intentionally avoiding) the inclusion of some operating expenses.
- Not considering trends over time.
- Not considering the value of capital assets and fixed costs that could be sold with the proceeds funding more profitable investments.