1. What is a Non Profit Operating Ratio Calculator?

Definition: This calculator determines the operating ratio, which measures what percentage of revenue is consumed by operating expenses.

Purpose: It helps non-profit organizations assess their operational efficiency and financial health.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( OR \) — Operating ratio (dimensionless)
• \( E \) — Operating expenses (currency, e.g., USD)
• \( R \) — Revenue (currency, e.g., USD)

Explanation: The operating expenses are divided by total revenue to determine what proportion of income is spent on operations.

3. Importance of Operating Ratio

Details: A lower ratio indicates better efficiency, as more revenue remains after covering operating costs. Non-profits typically aim for ratios below 0.85 (85%).

4. Using the Calculator

Tips: Enter your total operating expenses and total revenue in USD. Both values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's a good operating ratio for non-profits?
A: Generally, ratios below 0.85 (85%) are considered healthy, indicating at least 15% of revenue remains for other uses.

Q2: Should the ratio be converted to a percentage?
A: Yes, multiply by 100 to express as a percentage (e.g., 0.75 = 75%).

Q3: What expenses should be included?
A: Include all operational costs (salaries, rent, utilities, etc.) but exclude capital expenditures and one-time costs.

Q4: How often should this ratio be calculated?
A: Typically calculated quarterly or annually as part of financial reporting.

Q5: What if my ratio is over 1.0?
A: A ratio >1.0 means expenses exceed revenue, which is unsustainable long-term and requires budget adjustments.