Look at the percentages and work to decrease them. Work consistently to get your expenses to become a lower proportion of your revenues. This ratio shows the proportion of your sales dollar that remains for profit after all expenses except income taxes. Work to increase this percentage. Efficiency Ratios Efficiency ratios measure your effectiveness in managing two of the most important areas of your small business - accounts receivable and inventory.
Any business can tie up a lot of money in receivables and inventory.
Unless these two areas are monitored with objective standards such as these ratios, the amount of money invested can get out of hand quickly. This ratio indicates the number of times your accounts receivable turns over into cash during the year. It measures the effectiveness of your credit terms and collection procedures. Work to increase the turnover number. This ratio shows the average length of time in days from sale to collection of your accounts receivable.