Definition of Overhead Ratio

Operating costs consist of marketing, office rent, professional fees, utilities, insurance, equipment servicing, devaluation or plants or equipment, etc.

Brief Explanation of Overhead Ratio

It is a metric that allows organizations to evaluate costs as a percentage of revenue.

In common, an organization strives to achieve the lowest operating costs possible without sacrificing its products and/or solutions or competitiveness within the industry. Cutting costs have a positive effect on the Overhead Ratio; however, an organization must balance these cuts with keeping the standard of business. The Overhead Ratio is the comparison of operating costs and the complete earnings which are not related to creating solutions and product. The operating costs of an organization are the prices incurred by the organization each and every day. The operating costs consist of upkeep of equipment, marketing costs, devaluation of plant, furniture and various other costs. These costs, when controlled, can provide an organization by keeping the standard of the business. All organizations want to minimize expenses so that it helps them understand and manage the revenues of the organization. By definition, the number of operating costs to the sum of taxable equivalent net interest earnings and other operating earnings. The Overhead Ratio shows the proportion of costs to complete earnings which cannot be used for creating products or solutions.