1. What is the Operating Income Ratio?

The Operating Income Ratio (OIR) is a financial metric that measures a company's operating efficiency by expressing operating income as a percentage of revenue. It indicates how much profit a company makes from its core operations relative to its total sales.

2. How Does the Calculator Work?

The calculator uses the Operating Income Ratio formula:

Where:

• \( Operating\ Income \) — Income from core business operations (currency)
• \( Revenue \) — Total sales or revenue generated (currency)
• \( OIR \) — Operating Income Ratio expressed as percentage (%)

Explanation: The ratio shows what percentage of revenue remains as operating profit after accounting for all operating expenses.

3. Importance of Operating Income Ratio

Details: This ratio is crucial for assessing a company's operational efficiency, profitability, and cost management. A higher ratio indicates better operational performance and cost control.

4. Using the Calculator

Tips: Enter operating income and revenue in the same currency units. Both values must be positive, with revenue greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Operating Income Ratio?
A: A good ratio varies by industry, but generally, ratios above 15% are considered strong, while ratios below 5% may indicate operational inefficiencies.

Q2: How does OIR differ from net profit margin?
A: OIR focuses only on operating activities, excluding non-operating items like interest and taxes, while net profit margin includes all income and expenses.

Q3: Can OIR be negative?
A: Yes, if operating expenses exceed revenue, resulting in an operating loss and negative OIR.

Q4: Why is OIR important for investors?
A: It helps investors evaluate a company's core operational efficiency and compare performance across companies in the same industry.

Q5: How often should OIR be calculated?
A: It should be calculated quarterly and annually to track operational performance trends over time.