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 ... 
Asset Turnover Ratio
The amount of sales generated for every dollar's worth of assets ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Activity Ratios
Accounting ratios that measure a firm's ability to convert different ... 
Operating Ratio
A ratio that shows the efficiency of a company's management by ... 
Working Capital Turnover
A measurement comparing the depletion of working capital to the ...
Related Articles

Fundamental Analysis
Dynamic Current Ratio: What It Is And How To Use It
Learn why this ratio may be a good alternative to the current, cash and quick ratios. 
Fundamental Analysis
Understanding Activity Ratios
Activity ratios measure how effectively a business uses its assets. 
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 ... 
Personal Finance
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 ... 
Fundamental Analysis
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
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 ... 
Fundamental Analysis
Reading The Inventory Turnover
Inventory turnover is a ratio that shows how quickly a company uses up its supply of goods over a given time frame. Inventory turnover may be calculated as the market value of sales divided by ... 
Investing
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 ... 
Investing Basics
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Investing
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 ...
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 >> 
Which financial ratios are considered to be efficiency ratios?
Learn about efficiency ratios, what financial ratios are considered efficiency ratios, and how to calculate three different ... 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 >> 
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 >>