In expense ratio models, the dependent variable should be what?

In expense ratio models, the dependent variable is typically the Overall Expense Ratio (OER) because this model aims to assess the relationship between the total expenses incurred and the income generated from operations. The OER provides a comprehensive measure of how well an organization manages its expenses relative to its revenue, which is essential for understanding overall financial health and operational efficiency.

Using OER as the dependent variable allows analysts to effectively model and predict how changes in different expense categories, such as fixed and variable costs, impact the overall financial performance of the entity. This model helps to identify areas where expenses can be optimized, which ultimately supports better decision-making.

The other options, such as the Net Profit Ratio or the Fixed Cost Ratio, serve different purposes and do not directly measure the relationship between total expenses and total revenue in the same context as the OER. The Variable Cost Margin focuses on a specific subset of costs rather than the total expense picture that the OER represents.