3.6 efficiency ratio analysis

Question 1

bankruptcy

Answer 1

• the legal process declared by the courts that occurs when an individual or a business entity is unable to repay its debts

Question 2

credit control

Answer 2

• refers to the ability of a business to collect its debts
• within a suitable timeframe

Question 3

creditor days ratio

Answer 3

• an efficiency ratio that measures the average number of days it takes for a business to pay its creditors

Question 4

stock turnover

Answer 4

• how quickly the organisation sells its stock on average
• lower stock turnover means more efficient profit generation in an organisation

Question 5

what are the 2 equations for stock turnover?

Answer 5

1. ST (no. of times) = COGS/ average stock