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.

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.

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

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  3. Is the bottom line the best representation of a company's financial strength?

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  4. What are some examples of efficiency ratios used in measuring businesses?

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  6. What is the difference between efficiency ratios and profitability ratios?

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