Which financial measure indicates the proportion of revenues that are converted into operating profit?

The correct choice is the operating profit margin. This financial measure is calculated by dividing operating profit by total revenues, then multiplying the result by 100 to express it as a percentage. The operating profit margin effectively shows how much of each dollar of revenue is retained as operating profit after covering the costs that are necessary for running the business, such as wages, raw materials, and overhead.

This measure is critical for assessing a company’s operational efficiency and profitability relative to its revenue. A higher operating profit margin indicates that a company is good at converting sales into profits, suggesting effective cost control and pricing strategies.

While the operational gearing ratio relates to the proportion of fixed to variable costs and impacts how earnings change with changes in sales, it does not directly measure the profitability derived from revenues. Return on capital employed focuses on the efficiency and profitability of capital used in the business, but is not a direct indicator of revenue conversion into profits. The current ratio measures liquidity, assessing a company’s ability to meet short-term obligations, which is unrelated to revenue conversion into profit.