Question

Operating ratio is

• A. Profitability ratio
• B. Activity ratio
• C. Solvency ratio
• D. None of these

Hint:

Operating ratio measures cost efficiency and profitability of sales.

Answer 1

The Correct Option is A

Step 1: Understanding operating ratio.
Operating ratio = (Operating Expenses / Net Sales) × 100.
Step 2: Meaning.
It shows the proportion of sales consumed by operating expenses, indicating profitability efficiency.
Step 3: Classification.
Ratios are classified as profitability, activity, solvency, and liquidity ratios.
Since operating ratio measures profit efficiency, it is a profitability ratio.
Step 4: Option analysis.
- (A) Profitability ratio: Correct.
- (B) Activity ratio: Wrong, these measure turnover.
- (C) Solvency ratio: Wrong, deals with financial stability.
- (D) None of these: Wrong.
Step 5: Conclusion.
Operating ratio is a profitability ratio.