How is the operational gearing ratio calculated?

The operational gearing ratio is primarily used to assess the relationship between a company's fixed and variable costs in relation to its revenue. It highlights how changes in sales volume affect profits due to the mix of costs that the business carries.

When considering the choice indicating that the ratio is calculated as (Revenue - variable costs) / profit before tax, it is vital to note that this formula reflects the idea of how much contribution margin is available after covering the variable costs from the total revenue, in relation to the profit before tax. The contribution margin indicates how much revenue is available to cover fixed costs and contribute to profits, hence directly linking operational gearing to profitability.

In this context, operational gearing becomes evident because it shows how sensitive profits are to changes in revenue based on the cost structure of the business. A higher ratio suggests that profits are more sensitive to changes in revenue, which is a direct implication of having a higher proportion of fixed costs relative to variable costs.

The other options either incorporate incorrect variables or do not accurately reflect the concept of operational gearing, thus making them less applicable for calculating this specific financial metric.