What does an expense ratio indicate?

An expense ratio serves as a critical financial metric that illustrates the relationship between a company's operating expenses and its total revenues. It is calculated by dividing total operating expenses by total revenues, resulting in a percentage that helps assess the efficiency of a business's cost management relative to its income. A lower expense ratio indicates that a company is effectively controlling its costs in relation to its revenue generation efforts, which is a positive indicator of operational efficiency.

While other aspects, such as profitability or comparisons of income against expenses, are relevant in evaluating a company's financial health, they do not specifically capture the essence of the expense ratio, which is distinctly focused on operational expenses relative to revenue. Thus, option A accurately encompasses what the expense ratio indicates, emphasizing the interplay between costs incurred in operations and the income derived from those operations.