The sales to administrative expense ratio (SAE) is a financial ratio that is designed to assesses a company’s ability to manage its non-operating expense in a manner that other operations can bring about higher sales volume (i.e., improved sales). By nature, administrative expenses (though perceived to be essential or central expenses) aren’t directly related to sales, production process, or service delivery.
In other words, administrative costs can have on the results of core activities. Examples of such cost include employee salaries, HR and IT expenses, and so on.
Sales to administrative expense ratio is given by:
SAE = total sales/ admin expenses
This ratio reflects the sales volume that is generated by an entity, compared to each currency unit of the administrative expenses. A higher ratio is better for an entity because it shows that its core functions/ operations can be better leveraged- admin costs can be converted into more business.
An increasing ratio reflects an entity’s ability to improve its sales capitalizing on the same level of fixed costs.
