The sales to administrative expenses ratio (SAE ratio) is an efficiency ratio that measures how well a company is able to manage its non-operating expenses and generate sales during the normal course of operations. In other words, this ratio measures how well the firm is utilizing its fixed cost to manage its operations smoothly, which should ultimately reflect in better sales.
The SAE ratio can help business managers and accountants determine how well their organization is maintaining operations using fixed costs. The higher the SAE ratio is, the better the company is at generating a profit. If a company continues to see an increase in their SAE ratio over time without changing their operations or administrative costs, it may also indicate that they have the right infrastructure in place to scale their business.
The formula for the Sales to Administrative Expenses Ratio is:
![\[ \text{Sales to Administrative Expenses Ratio} = \frac{\text{Net Sales}}{\text{Administrative Expenses}} \]](https://excelcalculations.refrigeratordiagrams.com/wp-content/ql-cache/quicklatex.com-83ec557d365eaafb7a5abdfd63741953_l3.svg "Rendered by QuickLaTeX.com")
Here:
refers to the total revenue generated by the company after deducting returns, allowances, and discounts.
includes the costs associated with the general management and administration of the business, such as salaries of administrative staff, office supplies, utilities, and other overhead expenses.
All the items in this formula can be located in the income statement of the annual report. Analysts might have to check the notes to account to get a detailed split of all ‘non-operating’ expenses of a company.
Total sales are the total amount of money the company received from selling goods or services during a set period of time.
Administrative expenses are the expenses that support the overall business, but that don’t directly impact the production or delivery of the services or goods a company offers. Examples of administrative expenses include accounting fees, human resources expenses and salaries for executive team members or managers.
To calculate the SAE ratio in Excel, follow these steps:
- Enter the total sales and total administrative expenses of the company in two separate cells, such as A1 and A2.
- In another cell, such as B1, enter the formula
=A1/A2and press Enter. This will give you the SAE ratio for the company. - Format the cell as a percentage or a decimal, depending on your preference.
Example
Let’s look at an example of how to use the SAE ratio in Excel. Suppose we have the following data for a company:
| Total sales | Total administrative expenses |
|---|---|
| $500,000 | $100,000 |
We can enter these values in cells A1 and A2, respectively. Then, in cell B1, we can enter the formula =A1/A2 and press Enter. This will give us the SAE ratio of 5.00 or 500%.
This means that for every dollar the company spends on administrative expenses, it generates five dollars in sales. This indicates a high level of efficiency and profitability for the company.
