Harvard Business Review Leadership & Strategy Boxed Set (5 Books)

24

Efficiency Ratios

Making the Most of Your Assets

Efficiency ratios help you evaluate how efficiently you manage certain key balance sheet assets and liabilities. The phrase managing the balance sheet may have a peculiar ring, especially since most managers are accustomed to focusing only on the income statement. But think about it: the balance sheet lists assets and liabilities, and these assets and liabilities are always in flux. If you can reduce inventory or speed up collection of receivables, you will have a direct and immediate impact on your company’s cash position. The efficiency ratios let you know how you’re doing on just such measures of performance. (We’ll have more to say on managing the balance sheet in part 7.)

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