Administrative Expense Ratio
The management expense ratio refers to the proportion of management expenses to total operating income. This ratio can be used to evaluate the relative level of management expenses, and a high management expense ratio may indicate excessive management expenses or insufficient income. Generally, a lower management expense ratio may be beneficial to a company's profitability.
Definition: The management expense ratio (MER) refers to the proportion of a company's management expenses to its total operating revenue. This ratio can be used to assess the relative level of management expenses. A high MER may indicate that the company's management expenses are too high or that its revenue is insufficient. Generally, a lower MER may be beneficial to the company's profitability.
Origin: The concept of the management expense ratio originated in corporate financial management and accounting, first proposed in the early 20th century to help companies evaluate and control management expenses. As corporate management theories developed, this indicator gradually became widely used in financial analysis across various types of enterprises.
Categories and Characteristics: The management expense ratio can be subdivided based on different management expense items, such as:
- Administrative Management Expense Ratio: Includes office expenses, administrative staff salaries, etc.
- Sales Management Expense Ratio: Includes marketing, advertising expenses, etc.
- R&D Management Expense Ratio: Includes R&D staff salaries, R&D equipment expenses, etc.
Specific Cases:
- Case 1: A manufacturing company's management expenses are 1 million yuan, and its total operating revenue is 10 million yuan, resulting in a management expense ratio of 10%. By comparing with the industry average management expense ratio (e.g., 8%), the company finds its MER is high and decides to take measures to reduce management expenses, such as optimizing administrative processes and cutting unnecessary costs.
- Case 2: A tech company's R&D management expenses are 2 million yuan, and its total operating revenue is 50 million yuan, resulting in an R&D management expense ratio of 4%. The company considers this ratio reasonable as high R&D investment helps enhance product competitiveness and innovation capability.
Common Questions:
- What to do if the management expense ratio is too high? Companies can reduce the MER by optimizing management processes, cutting unnecessary expenses, and improving work efficiency.
- Is a low management expense ratio always good? A too low MER may indicate insufficient investment in management, which could affect the company's long-term development and competitiveness.
