Efficiency ratios — Accounting glossary

Efficiency ratios assess how effectively a business uses resources and manages working capital. Examples include inventory holding days, receivables collection days, payables payment days and asset turnover. Use a formula consistent with the question and compare trends, industry conditions and commercial policies. Average balances are often preferable where available because statement-of-financial-position balances are single-date snapshots.

Worked example

Receivables of $20,000 and annual credit sales of $200,000 imply about 36.5 days’ collection using 365 days.

Common mistake

Longer payables days can ease cash pressure but may indicate distress; lower inventory days can improve efficiency yet increase stockout risk.

Where it appears in your exams

Qualification	Exam	Relationship	Period
ACCA	FA	Direct	September 2026–June 2027
ACCA	K1	Direct	July 2027–August 2028
ACCA	SBL	Direct	September 2026–June 2027
FIA	FFA	Direct	September 2026–June 2027

Related terms

Asset turnover
Cash cycle
Inventory turnover period
Receivables collection period

Also called: Activity ratios