Investors and analysts commonly use the efficiency ratio, or expensetorevenue ratio, to compare a bank's expenses to its revenues. The ratio equals noninterest expense divided by the sum of net interest income and noninterest income and shows, as a percentage, how much money a bank spends to generate each dollar of revenue. A lower percentage ratio means a bank is more efficient at generating revenue, while a higher percentage suggests inefficiency. You can compare the expensetorevenue ratio of a bank to that of its competitors and the industry average to determine how efficient a bank is compared to others.
Things You'll Need
 Bank's income statement

Find a bank's total noninterest expense on its income statement. A bank typically provides the total amount of noninterest expense, which includes items such as salaries, rent, depreciation and utilities.

Find a bank's net interest income and noninterest income on its income statement. A bank typically provides the total of each amount. Noninterest income includes items such as fee income and service charges.

Calculate the sum of net interest income and noninterest income. For example, add $400,000 in net interest income to $600,000 in noninterest income. This equals $1 million in total net interest income and noninterest income.

Divide the bank's total noninterest expense by the sum of its net interest income and noninterest income to determine its expensetorevenue ratio. For example, divide $450,000 in noninterest expense by the $1 million sum of net interest income and noninterest income. This equals 0.45.

Move the decimal two places to the right in your result to convert it to a percentage. In the example, convert 0.45 to 45 percent, which is the bank's efficiency ratio.
Tips & Warnings
 You can also apply this ratio to companies in other industries, such as telecommunications, by dividing total operating expenses by total revenues.
References
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