Loading the player...
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.
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 ... 
Activity Ratios
Accounting ratios that measure a firm's ability to convert different ... 
Working Capital Turnover
A measurement comparing the depletion of working capital to the ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Inventory Turnover
Inventory Turnover is a ratio showing how many times a company's ... 
Days Sales Of Inventory  DSI
A financial measure of a company's performance that gives investors ...
Related Articles

Investing
Understanding Activity Ratios
Activity ratios measure how effectively a business uses its assets. 
Investing
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 ... 
Trading
Ratio Analysis
Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ... 
ETFs & Mutual Funds
How to Calculate a Turnover Ratio
A turnover ratio measures a mutual fund’s level of trading activity in a given time period, usually a year. 
Investing
AR & Inventory Turnover Is Key For These Sectors
Accounts receivable and inventory turnover are two important ratios in the current asset category. We will also discuss the key industries that benefit from a thorough understanding of these ... 
Managing Wealth
Asset Turnover Ratio
Investopedia explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ... 
Markets
Do Your Investments Have ShortTerm Health?
If a company is strong enough to survive tough times, it is more likely to provide longterm value. 
Investing
Receivables Turnover Ratio
The receivables turnover ratio is a measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. Learn more about it here. 
Managing Wealth
Understanding Turnover
Turnover has a number of different, but related, meanings depending on the context in which it is used. Generally, it means the number of times an item is replaced with a new or similar version ... 
Markets
Useful Balance Sheet Metrics
These metrics can help you better understand the information found on balance sheets.
RELATED FAQS

What do efficiency ratios measure?
Learn about efficiency ratios, what they measure, how to calculate commonly used efficiency ratios and how to interpret these ... Read Answer >> 
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 >> 
Why are efficiency ratios important to investors?
Learn about efficiency ratios, such as the asset turnover ratio, and why these metrics are important to investors when analyzing ... Read Answer >> 
How can an investor determine the efficiency of a company's working capital management?
Learn how working capital is vital to a company’s survival. Also learn key metrics investors use to assess how efficiently ... Read Answer >> 
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 >> 
What is the difference between accounts payable turnover ratio and accounts receivables ...
Learn the difference between the accounts payable turnover ratio and the accounts receivable turnover ratio. Understand what ... Read Answer >>