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The lower the ratio, the better (50% is generally regarded as the maximum optimal ratio). An increase in the efficiency ratio indicates either increasing costs or decreasing revenues. It is important to note that different business models can generate different efficiency ratios for banks with similar revenues. For instance, a heavy emphasis on ...
Tax efficiency is making investing choices that reduce one's tax bill. Learn how to compare the tax efficiency of different investments and why it matters for your portfolio.
Learn how to use financial ratios to evaluate a company's performance, compare it with others, and conduct fundamental analysis. Find out the formulas, examples, and benchmarks for profitability, liquidity, leverage, market, and activity ratios.
The operating ratio is also an indirect measure of efficiency. The lower the ratio, the more efficiently the company is creating profits. It is important to note, however, that some industries have higher or lower operating expense requirements than others. Thus, comparing operating ratios is generally most meaningful among companies within the ...
Gross profit margin is the gross profit as a percentage of revenue, indicating how efficiently a company converts raw materials into income. Learn how to calculate it, what it means, and how it differs from net profit margin.
SGR is calculated by subtracting the company’s dividend payout ratio (ie. the portion of net income distributed to stockholders in the form of dividends) from 1. Next, multiply that number by the company’s ROE. Sustainable Growth Rate Example . Say that Company DEF and Company GHI have the same ROE but offer a different dividend payout ratio.
Learn how to analyze a balance sheet, which provides insight into a company's financial position at a specific point in time. The balance sheet shows the value of assets, liabilities, and shareholders' equity, and helps to evaluate the company's profitability, liquidity, and efficiency.
The DuPont Analysis is important determines what is driving a company's ROE; Profit margin shows the operating efficiency, asset turnover shows the asset use efficiency, and leverage factor shows how much leverage is being used.
Learn how to calculate and interpret the asset turnover ratio, a measure of how efficiently a company's assets generate revenue. See an example, formula, and factors that affect the ratio.
The equity multiplier is a ratio that measures how much debt a company uses to finance its assets. It is calculated by dividing total assets by total stockholders' equity. Learn how to use the equity multiplier and see an example.