Efficiency Ratio
A bank Efficiency Ratio measures a bank's overhead as a percentage of its revenue. This allows analysts to assess the performance of commercial and investment banks.
For a bank, an Efficiency Ratio is an easy way to measure the ability to turn assets into revenue. Since a bank's operating expenses are in the numerator and its revenue is in the denominator, a lower efficiency ratio means that a bank is operating better. It is believed that a ratio of 50% is the maximum optimal efficiency ratio. If the efficiency ratio increases, it means the bank's expenses are increasing or its revenues are decreasing.