What do efficiency ratios indicate?

Efficiency ratios are critical metrics that provide insight into how effectively a company manages its resources, specifically its assets and liabilities. When focusing on option B, these ratios assess the company's operational performance, indicating how well it utilizes its assets to generate revenue. For instance, common efficiency ratios include inventory turnover, asset turnover, and accounts receivable turnover, which help analysts and investors understand how effectively a company is converting its assets into sales.

By measuring specific operational aspects, efficiency ratios give stakeholders a clear view of operational management. High efficiency ratios indicate that a company is using its assets effectively, while lower ratios suggest potential inefficiencies and areas that may require improvement. This understanding is essential for evaluating the internal processes of a business and its ability to maximize the returns from its invested capital.