Operating Profit Ratio
The operating profit ratio establishes the relationship between operating profit and net sales or revenue earned. In other words, the operating profit ratio is calculated by dividing operating profit by sales. Operating profit is calculated as follows:
Operating Profit = Net Sales - Operating Cost
Or
= Net sales - (Cost of Goods Sold + Administrative and Office Expenses + Selling and Distributive Expenses)
Operating Ratio can also be calculated as:
Operating Profit = Net Profit + Non-operating Expenses - Non-operating Income
Thus,
The ratio can also be calculated as:
Operating Profit Ratio = 100 - Operating Ratio
Operating activities of a business are its primary revenue producing activities. Operating profit ratio allows users to assess the impact of operating activities on the profitability of the firm. This ratio indicates the operating efficiency of the business. A higher ratio is desirable as it indicates that there is more income from operating activities.
Following are the figures taken from Annual Report of Infosys.
Operating Profit Ratio of Infosys Technologies Ltd. for the years 2006-07 and 2005-06 is given below:
(Rs. in crore)
|
|
2006-07
|
2005-06
|
|
Operating Expenses:
|
|
|
|
Software Development Expenses (given in schedule 11)
|
7,278
|
4,887
|
|
Selling and Marketing Expenses (given in schedule 12)
|
719
|
499
|
|
General and Administration Expenses (given in schedule 13)
|
927
|
653
|
|
Total Operating Expenses (A)
|
8,924
|
6,039
|
|
Net Sales/Revenue (Rs. in crores) (B)
(From software services and products)
|
13,149
|
9,028
|
|
Operating Profit (Rs. in crore) (C = B - C)
|
4,225
|
2,989
|
|
Operating Ratio (C) ¸ (B) x 100
|
32.13%
|
33.10%
|
The operating profit of the Infosys shows a slight decrease. Industry average operating profit margin is 25.8% (CMIE, Monthly Industry Analysis). Infosys operating profit during the year 2006-07 is 32.13%. Thus, the company's operating performance is good when compared with the industry.
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