OPERATING RATIO

Operating Ratio: The operating ratio is broadly speaking, the ratio between working expenses and gross earnings and as such is an important figure in the estimation of the relative operating efficiency. This operating ratio depends on gross earning as well as on working expenses. The smaller the operationg ratio, the more the economical and efficient the working other things being equal. This ratio is not always a good criterion of the relative operating efficiency of different Railways where the conditions of working vay considerably, and this is particularly so in India where differences in climate, topography, commercial and agricultural activity show so little uniformity. Moreover, the present systems of working expenses/gross earnings do not provide for meticulous apportionment/adjustments between Railways, nor do they leave enough freedom of fixing rates of freight and fares.

In comparing the ratio of one year with another of the same Railways. Also , great care, must be taken to see that the terms"working expenses" and "gross earnings" are clearly defined and that the figures have been compiled on the same basis. The object of a railway Administration is to keep this ratio as low as possible consistent with efficient working and good maintenance; it will tend to fall with efficient working, increase of traffic and fall in expenditure. This will also fall or rise with variation in the rates charged to the public for movement of passenger and good. Allowances has also be made for the peculiar features affecting earnings/working expenses of a particular year such as occurrence of breaches, realignment of routes, gauge conversion etc.

Hence it can be said that the operating ratio is not a measure of the efficiency of the operating staff. The operating ratio is correctly comparable when other things are equal, or if due provision is made for variation in other factors.

However, in the present question, assuming that operating ratio of both the zones'A' & 'B' have been computed on the basis of same standards and same set of environment  and other factors being equal. It can be safely said that zone 'A' Railway is more efficient in comparison to Zon "B" Railway as thej operating ratio zone 'A' is 81.16% which is less than 96.58% of zone'B'.