The key components in measuring a company's operating efficiency are as follows,
Explanation:
Efficiency can be defined as a measure to calculate the capability of the business to handle the existing assets and liabilities.
Return on assets (ROA): This measures the efficiency of a company's management in generating earnings from their economic resources or assets.
Total asset turnover: This ratio helps in measuring the ability of the business to generate sales from the existing assets.
In general, the following elements are assumed to be the efficiency ratios:
The efficiency ratio of a bank is calculated by diving the expenses (without including interest) by revenue. That is,
[tex]\text{Efficiency Ratio }=\frac{\text{ Expenses }}{\text{ Revenue }}[/tex]
This is also called as activity ratio.
