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Net Sales
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| Sales to Administrative Expenses =
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General and Administrative Expenses
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Explanation of Sales to Administrative Expenses:
The Sales to Administrative Expenses ratio measures how well
the company is keeping its administrative costs under control for its current
sales level. Some companies include their sales and marketing expenses in
with administrative expenses, but others will keep these figures
separate. If the company you are analyzing reports sales and marketing
costs separately, you will have to make the decision whether or not you will
include these with the General and Administrative expenses.
Importance of Sales to Administrative Expenses:
An increasing Sales to Administrative Expenses ratio is generally a
positive sign, showing the company is more able to generate sales using
its General and Administrative Expenses. Rarely does a company's
performance suffer from administrative expenses being too small. Hiring
based on sales forecasts that turn out to be lower than expected, corporate
mergers, and rapid growth phases tend to leave the company with a
disproportionately high percentage of administrative expenses - often
primarily consisting of salaries and benefits of the administrative
staff. Too much administrative overhead can indicate an overly complex
managerial structure, redundant departments, and slow reaction to market
changes. Keeping track of this ratio over time will yield a clearer
picture of how the company keeps control of its administrative expenses, and
comparing this ratio to competing companies provides even more insight.
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