Efficiency Ratio

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DEFINITION of 'Efficiency Ratio'

Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery.

BREAKING DOWN 'Efficiency Ratio'

Some common ratios are accounts receivable turnover, fixed asset turnover, sales to inventory, sales to net working capital, accounts payable to sales and stock turnover ratio. These ratios are meaningful when compared to peers in the same industry and can identify business that are better managed relative to the others. Also, efficiency ratios are important because an improvement in the ratios usually translate to improved profitability.

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RELATED FAQS
  1. What metrics can be used to evaluate companies in the wholesale sector?

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    Ratios are important tools used in fundamental analysis and valuation. Some measure operating performance based on data from ... Read Full Answer >>
  3. What do efficiency ratios measure?

    Efficiency ratios measure a company's ability to use its assets and manage its liabilities effectively. Some efficiency ratios ... Read Full Answer >>
  4. Which financial ratios are considered to be efficiency ratios?

    Efficiency ratios generally measure a company's ability to use its assets and liabilities to generate revenues or profits. ... Read Full Answer >>
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  7. What is the difference between efficiency ratios and profitability ratios?

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  8. What sorts of factors increase cash flow from operating activities?

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