Question:
The formula for calculating Gross ratio is?
The formula for calculating Gross ratio is?
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The Gross Ratio measures overall cost efficiency.
Gross Ratio = Total Expenses / Gross Income.
It shows how many dollars are spent to earn each dollar of gross income. A ratio less than 1 is desirable.
Don't confuse it with Operating Ratio (Operating Expenses / Gross Income).
Updated On: Jul 2, 2026
- Total expenses/Gross income
- Fixed expenses/Gross income
- Operating expenses/Gross income
- Gross income/Total asset \( \times \) 100
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The Correct Option is A
Approach Solution - 1
The Gross Ratio is a financial metric used in farm management and business analysis to assess the relationship between total expenses and total income. It indicates the proportion of gross income that is consumed by total expenses.
The formula is:
Gross Ratio = \fracTotal ExpensesGross Income
A lower gross ratio generally indicates better financial efficiency, as it means a smaller portion of the income is spent on expenses.
Let's examine the options:
(1) Total expenses/Gross income: This is the correct formula for Gross Ratio.
(2) Fixed expenses/Gross income: This would be a ratio of fixed expenses to gross income, not the Gross Ratio.
(3) Operating expenses/Gross income: This is the formula for the Operating Expense Ratio.
(4) Gross income/Total asset \( \times \) 100: This represents the rate of return on assets based on gross income, or a form of asset turnover ratio. Therefore, the correct formula for Gross Ratio is (1). Total expenses/Gross income
(1) Total expenses/Gross income: This is the correct formula for Gross Ratio.
(2) Fixed expenses/Gross income: This would be a ratio of fixed expenses to gross income, not the Gross Ratio.
(3) Operating expenses/Gross income: This is the formula for the Operating Expense Ratio.
(4) Gross income/Total asset \( \times \) 100: This represents the rate of return on assets based on gross income, or a form of asset turnover ratio. Therefore, the correct formula for Gross Ratio is (1). Total expenses/Gross income
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Approach Solution -2
Derivation approach:
The Gross Ratio is designed to show what fraction of the income earned by a farm business is absorbed by all expenses put together, not just a subset such as fixed or operating costs. By definition it is written as \[ \text{Gross Ratio} = \frac{\text{Total Expenses}}{\text{Gross Income}} \] Comparing this to the given options, "Fixed expenses/Gross income" only accounts for fixed costs, and "Operating expenses/Gross income" only accounts for operating costs, both of which understate the true expense burden captured by the Gross Ratio. "Gross income/Total asset \( \times 100 \)" measures return on assets, an entirely different concept. Only "Total expenses/Gross income" matches the definition.
The Gross Ratio is designed to show what fraction of the income earned by a farm business is absorbed by all expenses put together, not just a subset such as fixed or operating costs. By definition it is written as \[ \text{Gross Ratio} = \frac{\text{Total Expenses}}{\text{Gross Income}} \] Comparing this to the given options, "Fixed expenses/Gross income" only accounts for fixed costs, and "Operating expenses/Gross income" only accounts for operating costs, both of which understate the true expense burden captured by the Gross Ratio. "Gross income/Total asset \( \times 100 \)" measures return on assets, an entirely different concept. Only "Total expenses/Gross income" matches the definition.
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