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Quick Definition

Measures how well a company is managing its administrative expenses as compared to its sales.

There's More to Financial Analysis Than You Think...

The Financial Analysis Success Kit can help!

Why you should take a look at the Financial Analysis Success Kit:

We've combined all our highly popular financial analysis tools into one mega-financial-analysis-kit that will save you hundreds of dollars if purchased separately. The kit contains 9 files packed with the most important financial ratio analysis tools you can find to help rocket your way to mastering financial analysis. The kit includes:

  1. The eBook "Learn Ratio Analysis In Minutes"

  2. The Learn Financial Ratio Analysis Excel Spreadsheet (2 versions!)

  3. A BONUS eBook..."Key Financial Statement Terms"

  4. Another HUGE BONUS...Five-Part Financial Ratio Cheat Sheet Series

The result? You get all these professionally created tools for a great low price.

Learn more on our product page:

Click the button to learn more about the Financial Analysis Success Kit

 

financial ratio analysis success kit

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Sales to Administrative Expenses Formula

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 Sales General and Administration 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 Sales General and Administration 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.