Question

“Higher the ratio, the more favourable it is.” This does not apply to

• A. Operating ratio
• B. Net profit ratio
• C. Stock Turnover ratio
• D. All of these

Hint:

Operating Ratio is a cost ratio — for cost ratios, lower is favourable, unlike profitability/turnover ratios.

Answer 1

The Correct Option is A

Step 1: Check Net Profit Ratio and Stock Turnover Ratio first:
A higher Net Profit Ratio genuinely means more profit per rupee of sales, and a higher Stock Turnover Ratio genuinely means inventory is being sold and replenished faster — both are correctly ‘higher is better’ ratios.

Step 2: Isolate the exception:
Operating Ratio is a cost ratio, not a profitability ratio — rising cost as a percentage of sales signals inefficiency, so the exception must be Operating Ratio, leaving ‘All of these’ incorrect.

Final Answer:
(A) Operating ratio.