Legal Definitions - expense ratio

Expense ratio is a term used in accounting to describe the proportion or ratio of expenses to income. It is calculated by dividing the total expenses of a company by its total income.

If a company has total expenses of $50,000 and total income of $100,000, its expense ratio would be 50% ($50,000 ÷ $100,000).

Another example could be a household budget. If a family has a total income of $5,000 per month and their total expenses are $4,000 per month, their expense ratio would be 80% ($4,000 ÷ $5,000).

The expense ratio is an important metric for businesses and individuals to track as it helps to determine the financial health of the entity. A high expense ratio may indicate that a company or household is spending too much money relative to their income, while a low expense ratio may indicate that they are managing their finances well.