Operating Performance Ratios are the group of financial ratios that mainly use to measure the performance of the company’s operating activities.
Operating Performance Ratios contain many different ratios based on the type of company. Operating activities here mainly refer to productions or sales performance.
We will explain this below. But, to help you get more understanding about these ratios to let me explain this to you.
Let see the pictures of a company. There are two main important assets that drive the company operation. The first is fixed assets, and the second is the staff.
Fixed assets refer to any kind of property, plant, and equipment that drives the company operating activities.
These might mean machinery or building. The staff here refer to any kind of employee rank from sales staff to executive management.
Okay, I think that enough for this explanation and I believe you get it. Now let see what are those ration.
Here they are:
- Fixed Assets Turnover Ratio
- Sales Revenue Per Employee
Fixed Assets Turnover is one of the most important Operating Performance Ratios that try to measure how the company’s sales could be generated from its fixed assets.
This kind of ratio is most applicable for some kind of company like garment manufacturing. Sometime, you might break it down into specific assets that you want to assess. For example, class or machine or types of building.
Sales Revenue per employee is popularity apply to services organization or sometimes apply to assess the salesperson of an organization. This ratio assesses how efficient the company used its employees. It is also popular to use in KPI of the salesperson.
Related: Net Working Capital
Operating Performance Ratios Formula
Net Sales/ Net Property Plant and Equipment
Sales Revenue / Employees
Net Sales here refer to net sales that entity generates during the period. It can be month or year based on your assessment’s objective.
PPE here could be average or PPE at the end of the periods. Yet, PPE averages are more accurate for assessments.
Sales Return Per Employees: is also the Performance Ratios that could help you to figure out how is the performance of the sales department.
This ratio is used to measure how much sales could be made per employee. This ratio could be calculated by total sales per period/ average total of sales staff or employees.
To help you get more ideas on how the ratio says, you better compare current ratios with previous years, budget, and industry average.
As stated above, there are many other Operating Performance Ratios to be including your Operating Performance Ratios analysis, and two of the above ratios are normally included.
Written by Sinra