Expenses ratio explains relationship of items or group of expense to net sales. Such ratios are collectively known as expanses ratio. This is calculated and expressed in percentage. This Ratio expresses the percentage of items of expenses with net sales. This ratio helps us to know the cause behind overall changes in operating ratio. Purpose of this ratio is to take corrective action. It indicates the efficiency of management in control led expenses and improving profitability. This ratio enables the income tax department to judge the correctness and reliability of income disclosed in income tax returns. Analytical study of this ratio can be judged by trend of expenses. Comparative study of year to year expenses can be possible.
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