Efficiency-cost ratio = input cost/output benefit = annual profit before tax/total investment) * 100%, with more inputs and outputs, lower efficiency-cost ratio, more inputs and outputs and higher efficiency-cost ratio. The ratio used to measure the profitability of enterprises is also a comprehensive index to measure the operating effect and efficiency of enterprises.
Cost-benefit ratio is the value that should be returned through investment, that is, the economic return that enterprises get from an investment activity. It covers the profit target of the enterprise, and the profit is related to the property necessary for production, because managers must make profits through investment and existing property.
Extended data:
merits and demerits
Advantages: the cost-effectiveness ratio can reflect the comprehensive profitability of investment centers, and it is horizontal comparability because it eliminates the incomparable factors of profit difference caused by different investment amounts, which is conducive to judging the operating performance of each investment center; In addition, the cost-effectiveness ratio can be used as the basis for choosing investment opportunities, which is conducive to optimizing resource allocation.
Disadvantages: The deficiency of this evaluation index is the lack of overall concept. When the return on investment of an investment project is lower than that of the investment center and higher than that of the whole enterprise, the investment center may refuse it, although the enterprise wants to accept the investment project;
When the return on investment of an investment project is higher than that of the investment center and lower than that of the whole enterprise, the investment center may only consider its own interests and accept it, regardless of whether the overall interests of the enterprise are damaged.