Posted in Finance, Accounting and Economics Terms, Total Reads: 345
Definition: Efficiency Ratio
Efficiency ratios include many ratios which are used to analyze how well a company is using its assets and liabilities internally. These ratios are used to calculate the turnover of receivables, repayment of liabilities, quantity and effective usage of equity and how effective is the use of inventory and machinery.
Some common ratios are accounts stock turnover ratio, receivable turnover, sales to inventory, fixed asset turnover, sales to net working capital and accounts payable to sales. These ratios draw a better conclusion when compared to competitors in the same industry and know how the other businesses in the same industry are being managed. Also, efficiency ratios are important because betterment in the ratios translate into an improved working which further translates to improved profitability.