The ratio that relates operating expenses to net sales and complements the profit margin is called

• A. Operating Ratio
• B. Gross Margin
• C. Contribution Margin
• D. Return on Sales

Answer: (A)

Understanding how much of net sales is eaten up by operating expenses is key here. That proportion is the operating ratio, calculated as operating expenses divided by net sales. It complements the profit margin because while the profit margin shows how much of sales remains as profit after all costs, the operating ratio shows the flip side—how large a share of each sales dollar goes to operating costs. A lower operating ratio means more of sales is available to contribute to profit, all else equal.

Other concepts measure different things: gross margin looks at production efficiency before operating expenses, contribution margin uses variable costs, and return on sales uses net income rather than operating costs.