The efficiency ratio reflects a company’s overall financial health. It analyzes how efficiently a company uses its assets and liabilities internally.

However, at times, it becomes difficult to measure the efficiency level of a company. This is why one must consider the popular efficiency ratios listed below while selecting stocks.

Indivior Pharmaceuticals Inc. (INDV Quick QuoteINDV - Free Report) , Ciena (CIEN Quick QuoteCIEN - Free Report) and Ultra Clean (UCTT Quick QuoteUCTT - Free Report) have made it through the screen process:

Efficiency Ratios to be Considered

Receivables Turnover: This is the ratio of 12-month sales to four-quarter average receivables. It shows a company’s potential to extend its credit and collect debt in terms of that credit. A high receivables turnover ratio, or the “accounts receivable turnover ratio” or “debtor’s turnover ratio,” is desirable as it shows that the company is capable of collecting its accounts receivables or that it has quality customers.

Asset Utilization: This ratio indicates a company’s capability to convert assets into output and is thus a widely known measure of efficiency level. It is calculated by dividing total sales over the past 12 months by the last four-quarter average of total assets. Like the above ratios, high asset utilization may indicate that a company is efficient.

Inventory Turnover: The ratio of the 12-month cost of goods sold (COGS) to a four-quarter average inventory is considered one of the most popular efficiency ratios. It indicates a company’s ability to maintain a suitable inventory position. While a high value indicates that the company has a relatively low level of inventory compared to COGS, a low value indicates that the company is facing declining sales, which has resulted in excess inventory.

Operating Margin: This efficiency measure is the ratio of operating income over the past 12 months to sales over the same period. It measures a company’s ability to control operating expenses. Hence, a high value of the ratio may indicate that the company manages its operating expenses more efficiently than its peers.

Screening Criteria Using Research Wizard:

In addition to the above-mentioned ratios, we have added a favorable Zacks Rank — Zacks Rank #1 (Strong Buy) — to the screen to make this strategy more profitable. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inventory Turnover, Receivables Turnover, Asset Utilization, and Operating Margin greater than the industry average

(Values of these ratios higher than industry averages may indicate that the efficiency level of the company is higher than its peers.)

The use of these few criteria narrowed down the universe of over 7,906 stocks to 14.

Here are the top three stocks that made it through the screen:

Indivior Pharmaceuticals

Indivior Pharmaceuticals operates as a specialty pharmaceutical company, which is engaged in discovering and developing medications and treatments for alcohol addiction, opioid overdose, cocaine intoxication and co-occurring conditions, such as schizophrenia. INDV has an average four-quarter earnings surprise of 74.5%.

Ciena

Ciena is a leading provider of optical networking equipment, software and services. CIEN has an average four-quarter earnings surprise of 11.6%.

Ultra Clean

Ultra Clean is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. UCTT has an average four-quarter earnings surprise of 0.7%.