Chapter 38, Efficiency ratios

Question 1

Financial efficiency ratios

Answer 1

measures ability of a business to manage its assets and liabilities efficiently

Question 2

Asset turnover

Answer 2

measures how efficiently a business is able to use its non-current assets to generate sales revenue
Non-current Assets turnover = revenue (turnover) / non -current assets

Question 3

Stock (inventory) turnover

Answer 3

cost of stock (or sales) / average stock

Question 4

Debtor days (trade receivable days)

Answer 4

measures how quickly debts are turned into cash

Trade receivables / revenue (sales) x 365

Question 5

Creditor days

Answer 5

measures how quickly a business pays its suppliers

trade payables / purchases ( cost of sales ) x 365