Efficiency Ratio

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What is the 'Efficiency Ratio'

The efficiency ratio is a ratio that is 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 are some examples of efficiency ratios used in measuring businesses?

    Learn about some of the most common efficiency ratios that market analysts and investors use in the process of evaluating ... Read Answer >>
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    Learn how working capital is vital to a company’s survival. Also learn key metrics investors use to assess how efficiently ... Read Answer >>
  3. Does a high efficiency ratio mean that the company is profitable?

    Understand the variety of efficiency ratios and why a high efficiency ratio does not necessarily mean a company is operating ... Read Answer >>
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    Learn the difference between the accounts payable turnover ratio and the accounts receivable turnover ratio. Understand what ... Read Answer >>
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