The cost/income ratio is an efficiency measure similar to operating margin. Unlike the operating margin, lower is better. The cost income ratio is most commonly used in the financial sector.
It is useful to measure how costs are changing compared to income - for example, if a bank's interest income is rising but costs are rising at a higher rate looking at changes in this ratio will highlight the fact.
The cost/income ratio reflects changes in the cost/assets ratio.
The cost income ratio, defined by operating expenses divided by operating income, can be used for benchmarking by the bank when reviewing its operational efficiency. Francis (2004) observes that there is an inverse relationship between the cost income ratio and the bank's profitability. Ghosh et al. (2003) also find that the expected negative relation between efficiency and the cost-income ratio seems to exist. The study shows that the cost-income ratio is negative and strongly significant in all estimated equations, indicating that more efficient banks generate higher profits.
How dose the cost income ratio is calculated in the banking model?
Cost Ratio = expenses/earnings
staff cost to income
operating expenses/operating income
A cost or expense ratio is not that hard to calculate. Basically its the operating expenses divided by the average value of assets under management. Many sites have calculators that make this easy.
A strong cost to income ratio is a low ratio, typically below 50%. This indicates that a company's operating costs are relatively low compared to its income, indicating efficient operations and good financial management. A low ratio suggests that a company is able to generate significant profits while keeping costs under control, which is favorable for investors and stakeholders.
ending inventory
If contribution margin ratio or contribution margin per unit is given then it is not required to have variable cost available as in that case break even point can be calculated using contribution margin ratio, if contribution margin ratio is also not available then we have to prepare summarized income statement for missing figures and from that information we will create break even point.
Revenue (11000 * 110) 1210000fixed Cost 385500variable cost 698950 (balance figure)Operating Income 125550Variable cost per unit = 698950/11000variable cost per unit = 63.54Contribution margin ratio = (Sales - Variable cost) / Sales * 100Contribution margin ratio = (1210000 - 698950 ) / 1210000Contribution margin ratio = 0.42 or 42%
No, income tax is calculated after all other fixed and variable costs are considered and deducted from gross sales. That number is your Net Profit, and income tax is calculated based on that number (not on the number of units one produces).
Net. Operating. Income. Can. Be. Calculated. By. Using. The. Following. formula. V=EBIT/k0 V=value. of. a firm EBIT=net operating. income or. earnings. before. Interest and tax K0=overall. Cost. Of. Capital
Break-even point = Fixed cost / contribution margin ratio Contribution margin ratio = sales - variable cost / sales by using these equations break even point can be calculated