Eastern Railroad Discussion > What is an Operating Ratio?

The following article talks about how Norfolk Southern's operating ratio has improved by dropping 2.3 points. Exactly what is a railroad's operating ratio and how does it work?

http://trn.trains.com/news/news-wire/2017/07/26-ns-earnings-q2-2017

Operating expenses divided by net sales. The smaller the ratio the greater the organizations ability to generate profits.

Phil Maton
Villa Rica, GA

Slight correction: Net REVENUES, not sales, There's a difference.

How much of a dollar does doe the company need to spend to make a full dollar.

http://www.investopedia.com/terms/o/operatingratio.asp

A publicly traded firm's financial statements talk about three sources of income: operations, investing, and finance. Analysts evaluate each source separately.

Income from operations is income related to the purpose of the business, in this case providing transportation services. Income from operations is normally the largest source of income.

Income from investing is often negative, because the firm is using its profits to replace capital assets or add new capital assets (factories, locomotives, etc.). If the firm holds cash equivalents (mainly bonds), there is some income earned that does not relate to the firm's operations.

Finance is usually the firm taking on / paying off debt, either in the form of loans or bonds issued by the firm.