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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 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
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    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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