Efficiency Ratio

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Net Operating Income - NOI

    A company's operating income after operating expenses are deducted, ...
  2. Expense

    1. The economic costs that a business incurs through its operations ...
  3. Operating Expense

    A category of expenditure that a business incurs as a result ...
  4. Overhead

    An accounting term that refers to all ongoing business expenses ...
  5. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  6. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
Related Articles
  1. Working Capital Works
    Insurance

    Working Capital Works

  2. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  3. Spotting Profitability With ROCE
    Fundamental Analysis

    Spotting Profitability With ROCE

  4. When is revenue recognized under accrual ...
    Fundamental Analysis

    When is revenue recognized under accrual ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center