The ratio of operating expenses to net sales, which is the complement to the profit margin ratio, is called the

• A. Operating Ratio
• B. Gross Margin
• C. Contribution Margin
• D. Net Profit Margin

Answer: (A)

The main idea here is understanding how sales are allocated between costs and profit. The ratio of operating expenses to net sales shows what portion of each sales dollar is eaten up by operating costs, and that measure is called the Operating Ratio. It’s taken as a complement to the profit margin because profit margin looks at how much of each sales dollar ends up as profit after all expenses, while the operating ratio focuses specifically on the share consumed by operating costs before profit considerations.

In other words, gross margin and other margins measure different pieces of the picture, but the operating ratio directly ties operating costs to sales, giving a view of operating efficiency. For contrast: gross margin is sales minus cost of goods sold, contribution margin is sales minus variable costs, and net profit margin is net income divided by net sales. These other metrics describe other aspects of profitability or cost structure, not the specific share of sales consumed by operating expenses.