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Operating Expense Ratio is very important in the operational and financial health of non-profit organizations? What is the formula to calculate it and please explain how does it indicate the health of the organization?
A measure of what it costs to operate a piece of property compared to the income that the property brings in.
The operating expense ratio is a useful tool when comparing the expenses of similar properties. If a particular piece of property has a much higher OER for a particular expense, such as maintenance, an investor should see that as a red flag and should look deeper into why maintenance expenses are so much higher than comparable properties. For example, consider a piece of property with a gross operating income of $50,000. Total operating expenses are $6,200, which include utilities ($700), insurance ($1,500) and taxes ($4,000). The overall OER would be12.4% ($6,200/$50,000) and the broken down OER for each of the expenses would be1.4% for utilities ($700/$50,000),3% for insurance ($1,500/$50,000), and8% for taxes ($4,000/$50,000). The investor can then compare these percentages to other similar properties.
A Non profit organization is similer to a for-profit organization interms of operations,as it has common expenses,paid employees and general operation costs.These cost may vary or change depending upon the size of the organization.In short OER is a measure of what it cost to operate a piece of property compare to the income that property brigns in.
OER = Operating Expenses/Gross operating Income.
