Efficiency Ratio Formula measures the effectiveness with which a business uses its resources. It calculates how efficiently a company is using its capital, labor, and assets to produce an output. By comparing expenses to revenues, it can help determine whether a company is reducing costs while still achieving results. The formula divides total operating expenses by total net revenues, giving you a percentage of operating efficiency. A higher ratio indicates that the company is producing more with fewer resources and operating more efficiently. Conversely, a lower ratio suggests that the company could be doing better at managing its resources for maximum output.