# Berry Ratio - Explained

What is the Berry Ratio?

# What is the Berry Ratio?

The Berry ratio is the ratio of the gross profit of a company to the operating expenses. This ratio compares the gross profit of a company to the operating expenses at a given period. The formula for calculating the Berry ratio is: Berry ratio = gross profit / operating expenses A berry ratio coefficient of 1 and above tells us that the company makes more profit than its operating expenses while a ratio below 1 indicates that the company is operating at a loss; operating expenses are more than gross profits.

## How is the Berry Ratio Used?

Charles Berry, an American economics professor developed the Berry ratio in 1979, it was thereafter named after him. The Berry ratio helps a business to compare the ratio of gross profit to operating expenses. When calculating this ratio, interests earned by a company and extraneous income are not included as gross profit, likewise is depreciation or amortization regarded as an operating expense. The Berry ratio gained more recognition in the United States in the 1990s in evaluating or comparing the gross profits to operating expenses so as to determine whether a company is operating at a loss or making more profits. However, the Berry ratio is rarely used in practice as some academics categorize it as one of the most abused (misused) ratios.

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