Quick Definition
Berry Ratio (BR) — The Berry Ratio is a profit level indicator that divides gross profit by operating expenses:
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The Berry Ratio is a profit-level indicator that divides gross profit by operating expenses:
A result of 1.20 means the tested business earns €1.20 of gross profit for each €1.00 of operating expense. Because gross profit equals operating expenses plus operating profit, a ratio of 1.00 represents operating break-even when the accounting classifications are consistent.
The OECD Transfer Pricing Guidelines discuss Berry ratios in paragraphs 2.106–2.108. Paragraph 2.107 identifies three conditions that should be supported by the facts:
The ratio can therefore be useful for a genuine intermediary whose operating expenses reflect its value-adding activity and whose product costs largely pass through. It is not automatically appropriate for every distributor or sales agent.
Berry ratios are highly sensitive to whether costs are classified as cost of goods sold or operating expenses. Use consistent accounting classifications for the tested party and comparables, and reconcile any material differences before interpreting a range.
| Item | Amount |
|---|---|
| Revenue | €15,000,000 |
| Cost of goods sold | €14,200,000 |
| Gross profit | €800,000 |
| Operating expenses | €650,000 |
| Operating profit | €150,000 |
The calculation alone does not establish an arm's-length result. The functional analysis, accounting consistency, comparable search and resulting range still need to support the conclusion.