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The efficiency ratio of a business is expenses as a percentage of revenue (expenses / revenue) with a few variations. A lower percentage is better since that means expenses are low and earnings are big. It's the "reverse" operating leverage: revenue / expenses. The operating leverage is fixed operating expenses as a percentage of revenue: [[operating expenses]/revenue ]. The operating margin is operating income as a percentage of revenue. ...
Example
If expenses are $40 and revenue is $80 (perhaps net of interest revenue/expense) the efficiency ratio is 0.5 or 50% (40/80), the operating leverage is 2.0 or 200%.
Citigroup Citigroup, Inc. 2003: - Revenues, net of interest expense: 77,442
- Operating expenses: 39,168
That makes operating expenses / revenue = 39,168/77,442 = 0.51 or 51%. The efficiency ratio is 0.51 or 51%. Or the other way revenue / expenses 77,442/39,168 = 1.98. The "operating leverage" is 198%. The operating leverage is fixed operating expenses as a percentage of revenue: [[operating expenses]/revenue ]. The operating margin is operating income as a percentage of revenue. ...
Alternative If "benefits, claims, and credit losses" is added to operating expenses the ratio get worse. 51109/77,442=0.66
Alternative If it's calculated as revenue divided by expenses (interest expense, "benefits, claims, and credit losses", operating expenses) it becomes 1 less the "income from continuing operations" margin. 68,380/94,713=0.72
See also A financial ratio is a ratio of two numbers of reported levels or flows of a company. ...
The operating leverage is fixed operating expenses as a percentage of revenue: [[operating expenses]/revenue ]. The operating margin is operating income as a percentage of revenue. ...
External links
Example - C: Income Statement for CITIGROUP INC - Yahoo! Finance
- Citigroup - Annual Reports & Proxy Statements
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