Loading the player...
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.
Next Up
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.
RELATED TERMS

Receivables Turnover Ratio
An accounting measure used to quantify a firm's effectiveness ... 
Net Operating Income  NOI
A company's operating income after operating expenses are deducted, ... 
Operating Expense
A category of expenditure that a business incurs as a result ... 
Overhead
An accounting term that refers to all ongoing business expenses ... 
Expense
1. The economic costs that a business incurs through its operations ... 
Net Income  NI
1. A company's total earnings (or profit). Net income is calculated ...
Related Articles

Stock Analysis
The Top 4 LargeCap Bank Stocks for 2016 (WFC, JPM)
Discover detailed analyses of the top four bank stocks that should be considered for 2016, and learn why they may be poised to rise if the Fed raises rates. 
Stock Analysis
Investing in Lumber Liquidators? Read This First (LL)
Find out what investors should know before buying Lumber Liquidators shares. Learn about Lumber Liquidators' financial performance and operational outlook. 
Fundamental Analysis
Efficiency Ratio
There are many types of efficiency ratios, but all measure how well a company utilizes its resources to make a profit. Business managers use these ratios to determine how well they are operating ... 
Insurance
Working Capital Works
A company's efficiency, financial strength and cashflow health show in its management of working capital. 
Fundamental Analysis
Measuring Company Efficiency
Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period. 
Fundamental Analysis
Spotting Profitability With ROCE
This straightforward ratio measures whether a company is efficient, moneymaking or neither. 
Economics
Understanding CostVolume Profit Analysis
Business managers use costvolume profit analysis to gauge the profitability of their company’s products or services. 
Fundamental Analysis
5 Basic Financial Ratios And What They Reveal
Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know. 
Investing Basics
How to Analyze a Company's Inventory
Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory. 
Stock Analysis
Understanding Chipotle's Financials (CMG)
Learn about Chipotle Mexican Grill and its financial statements, including metrics such as comparable sales, operating margin and returns.
RELATED FAQS

What metrics can be used to evaluate companies in the wholesale sector?
The largest wholesale distribution industries include motor parts, commercial equipment, electronics, petroleum products, ... Read Full Answer >> 
How do I use ratios to perform a financial analysis?
Ratios are important tools used in fundamental analysis and valuation. Some measure operating performance based on data from ... Read Full Answer >> 
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 >> 
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 >> 
Is the bottom line the best representation of a company's financial strength?
A company's bottom line, also referred to as net income, is an important indicator of operational condition and can be used ... Read Full Answer >> 
What are some examples of efficiency ratios used in measuring businesses?
Efficiency ratios determine how productively a company manages its assets and liabilities to maximize profits. Shareholders ... Read Full Answer >> 
What is the difference between efficiency ratios and profitability ratios?
Efficiency ratios and profitability ratios are tools used in fundamental analysis. These ratios help investors with their ... Read Full Answer >> 
What sorts of factors increase cash flow from operating activities?
Cash flow from operating activities is calculated by adding net income, total noncash expenses and net change in working ... Read Full Answer >> 
Why do shareholders need financial statements?
Shareholders need financial statements to evaluate their equity investments and help them make informed decisions as to how ... Read Full Answer >>