OPERATING EXPENSE TO SALES Definition

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OPERATING EXPENSE TO SALES reports the operating expenses as a percent of Net Revenues. This then is a measure of the total overhead employed in the firm per Net Sales Revenue Dollar; thereby giving an indication of the efficiency of the cost structure of the company. It gives an indication of the ability of a business to convert income into profit. Generally, businesses with low ratios will generate more profit than others. In general business operations with larger and more stable cash flows can sustain higher ratios than smaller and less stable operations. Scale and income stability are important considerations though it is up to the management of a business to monitor costs in an appropriate manner whatever its size. Formula: Total Overhead Cash Expense / Net Revenues

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NWC is Net Working Capital.

TRADE SPENDING is that marketing expense directed towards brand building, e.g. promotional allowances, slotting, and advertisements. Total expenditure often represents 20-25% or more of total sales and is a significant expenditure for any size company. Managing this investment more wisely and reducing any fraction of a percentage of these dollars is vital.

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