The cost-to-income ratio is a key financial measure, particularly important in valuing banks. It shows a company’s costs in relation to its income. To get the ratio, divide the operating costs (administrative and fixed costs, such as salaries and property expenses, but not bad debts that have been written off) by operating income. The ratio gives investors a clear view of how efficiently the firm is being run – the lower it is, the more profitable the bank will be. Changes in the ratio can also highlight potential problems: if the ratio rises from one period to the next, it means that costs are rising at a higher rate than income, which could suggest that the company has taken its eye off the ball in the drive to attract more business.
Merryn Somerset Webb talks to Tim Price about the 'dysfunctional' financial environment, and when the world's culture of debt will finally collapse.
More from MoneyWeek
|A beginner's guide to investing in gold|
|FREE REPORT: MoneyWeek's top share tips for 2015|
On this day in 1915, 250 prominent Armenians were arrested in Constantinople – an event generally acknowledged as the start of the Armenian genocide.
Investing for your children's long-term future is an excellent idea. But what should you buy? The Kids' Portfolio is a simple collection of four funds intended to be tucked away for 20 to 40 years.