What term describes the comparison of profit with each item of expense in the income statement expressed as a percentage of sales?

• A. Profit ratio
• B. Operating ratios
• C. Expense ratio
• D. Gross margin

Answer: (B)

Operating ratios express how each item in the income statement relates to sales by turning those amounts into percentages of sales. This lets you see, for every line—rent, salaries, supplies, marketing, and other operating costs—how large it is relative to revenue and how that affects overall profitability. By comparing these percentages over time or against benchmarks, you can spot which expenses are rising or consuming more of sales and where efficiency improvements are needed. Gross margin looks at profitability after removing the cost of goods sold, not at how individual expense items stack up against sales. A profit ratio would summarize overall profitability as a share of sales, not provide a line-by-line view. An expense ratio is a broader term often used in other contexts, not specifically the income-statement-focused analysis of operating items. So the term that best fits describing profit in relation to each expense item as a percentage of sales is operating ratios.