Efficiency Ratio Calculator
Measure operational efficiency and cost management effectiveness
Calculate Efficiency Ratio
Total costs to run the business (salaries, rent, utilities, etc.)
Net interest income + non-interest income
Efficiency Analysis
Average Efficiency
Average efficiency. There's room for improvement in cost management. Review operating expenses and identify areas to reduce costs.
Cost Structure
Efficiency Metrics
Formula: Efficiency Ratio = (Operating Expenses / Net Revenue) × 100
Where: Operating Expenses = $60,000.00, Net Revenue = $100,000.00
💡 Key Insights
Example Calculation
Bank Example
Operating Expenses: $60,000
Net Revenue: $100,000
(Interest Income: $80,000 - Interest Expense: $20,000 + Non-Interest Income: $40,000)
Calculation
Efficiency Ratio = (Operating Expenses / Net Revenue) × 100
Efficiency Ratio = ($60,000 / $100,000) × 100
Efficiency Ratio = 0.60 × 100
Efficiency Ratio = 60%
Operating Income = $100,000 - $60,000 = $40,000
Interpretation
An efficiency ratio of 60% means that for every dollar of revenue generated, 60 cents is spent on operating expenses, leaving 40 cents as operating income. This is considered a good efficiency ratio for banks.
📊 Industry Benchmarks
Lower ratios indicate better efficiency and cost management.
🎯 Rating Scale
💡 Improvement Tips
Automate processes to reduce labor costs
Negotiate better rates with suppliers
Optimize staffing levels and scheduling
Focus on high-margin products/services
Reduce unnecessary overhead expenses
Implement cost tracking and monitoring
Understanding Efficiency Ratio
What is Efficiency Ratio?
The efficiency ratio measures how well a company converts its revenue into profit by comparing operating expenses to revenue. It's widely used in banking and financial services to assess operational efficiency and cost management.
Why It Matters
- •Cost Control: Shows how effectively you manage expenses
- •Profitability Indicator: Lower ratio = higher profitability
- •Competitive Benchmark: Compare performance with peers
Efficiency Ratio Formula
Efficiency Ratio = (Operating Expenses / Net Revenue) × 100
- Operating Expenses: Costs to run the business
- Net Revenue: Total revenue or net interest income + non-interest income
- Lower is Better: Less spent per dollar of revenue earned
Key Insight: A 60% efficiency ratio means you spend $0.60 to earn $1.00 of revenue, leaving $0.40 as operating income.
Interpreting Results
Low Efficiency Ratio (<60%)
- • Excellent cost management
- • Higher profitability
- • Competitive advantage
- • More resources for growth
High Efficiency Ratio (>70%)
- • High operating costs
- • Lower profitability
- • Need for cost reduction
- • Limited growth capacity
Banking vs General Business
Banking Industry
Uses net revenue (net interest income + non-interest income) in the denominator.
General Business
Uses total revenue in the denominator for simplicity.