Operating profit ratio indicates the relationship between operating profit and net sales. This ratio is expressed in percentage. It signifies higher operating efficiency of management and control over operating cost. It indicates profitability of various operations of the organization I.e. buy, manufacture, sales, etc. It shows the ability of an organization to generate operating profit out of its daily operations.
Formula:
Components:
1) Net operating profit is equal to gross profit minus all operating expenses or sales minus cost of goods sold and operating expenses.
2) Net sales are equal to sales minus sales returns.
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