Efficiency Ratio

The Efficiency Ratio is a financial metric used to measure how well a company uses its resources to generate revenue. It’s calculated by dividing operating expenses by total revenue and is usually expressed as a percentage. A lower efficiency ratio indicates that a company is spending less to produce its income, reflecting greater efficiency. Conversely, a higher ratio suggests higher costs relative to revenue, which can signal inefficiency. This ratio helps investors assess a company's cost management and operational effectiveness, ultimately influencing investment decisions.