# The Full Wiki

•   Wikis

Note: Many of our articles have direct quotes from sources you can cite, within the Wikipedia article! This article doesn't yet, but we're working on it! See more info or our list of citable articles.

# Encyclopedia

Updated live from Wikipedia, last check: May 25, 2013 05:18 UTC (51 seconds ago)

The efficiency ratio, a ratio that is typically applied to banks, in simple terms is defined as 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 high. It is related to operating leverage, which measures the ratio between fixed costs and variable costs.

## 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). Efficiency ratio is essentially how much you spend to make a dollar. In the above example, they spent \$0.50 for every dollar they earned in revenue.

### 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%.

### Alternative

If "benefits, claims, and credit losses" are added to operating expenses the ratio gets 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
```