how overhead ratios are used
calculating its overhead ratio helps a company evaluate its costs of doing business compared to the income the business is generating in general a company strives to achieve the lowest operating expenses possible without sacrificing the quality or competitiveness of its goods or services a company also may keep track of its overhead ratio in order to compare it to others in its industry or its industry as a whole a higher overhead ratio in comparison to the competition might require some adjustment or at least a rational explanation for example a company might determine that maintaining its headquarters in manhattan or san francisco has caused it to have a higher overhead ratio than a competitor located in omaha or akron cutting expenses has a positive effect on the overhead ratio however a company must balance the effect of these cuts with any potential damage to the products or services it sells 