Efficiency

Question 1

What are the efficiency ratios

Answer 1

Inventories turnover period, trade receivables collection period, trade payables payment period, asset turnover ratio

Question 2

What is another name for Inventories Turnover Period

Answer 2

Inventories days or stock days

Question 3

What does the inventories turnover period measure

Answer 3

The average period for which inventories are held

Question 4

How is the inventories turnover period expressed

Answer 4

As a number of days

Question 5

Do business prefer a long inventories turnover period or a short inventories turnover period

Answer 5

A short turnover period

Question 6

What are the costs of holding up stock

Answer 6

Funds get tied up, storage costs increase and there is a risk obsolescence

Question 7

What must the company do to keep its inventory in order

Answer 7

They must balance not holding enough stock with holding too little

Question 8

What happens if too little stock is held

Answer 8

There is lost sales, loss of customer goodwill and production down time

Question 9

How is inventories turnover period calculated

Answer 9

Calculated as … inventories held /cost of sales x 365

Question 10

What is the trade receivables collection period also known as

Answer 10

Trade receivables days, debtors days, settlement period for trade receivables

Question 11

What does trade receivables collection period measure

Answer 11

It measures the average period it takes for credit customers to pay what they owe

Question 12

How is the trade receivables collection period expressed

Answer 12

As a number of days

Question 13

Do business prefer a shorter collection period or a longer collection period

Answer 13

Shorter

Question 14

What should trade receivables collection period aim to do

Answer 14

Should aim to collect debts quickly without damaging customer goodwill and to compare actual collection period with credit terms offered

Question 15

How can the trade receivables collection period be sped up

Answer 15

Discounts for quick payments, interest charged on overdue payments, check credit rating of customer before giving credit, send invoices out quickly, make it easy to pay, chase up overdue debt

Question 16

How are trade receivables collection period calculated

Answer 16

As trade receivables/ collection sales x 365

Question 17

What else is trade payables payment period known as

Answer 17

Trade payables days, creditors days, settlement period for trade payables

Question 18

What does the trade payables payment period measure

Answer 18

Measures the average period it takes to pay for goods bought on credit

Question 19

How is the trade payables payment period expressed

Answer 19

As a number of days

Question 20

Do business prefer a short or long trade payables payment period

Answer 20

A longer one

Question 21

How is the trade payables payment period calculated

Answer 21

As trade payables/ credit purchases x 365

Question 22

What else is the asset turnover ratio known as

Answer 22

Sales revenue to capital employed ratio

Question 23

What does the asset turnover ratio measure

Answer 23

How effectively the assets of the business are being used to generate sales revenue

Question 24

How is the asset turnover ratio expressed

Answer 24

As a number of times

Question 25

Do business prefer a higher or lower asset turnover ratio

Answer 25

A higher

Question 26

What does a higher asset turnover ratio suggest

Answer 26

That assets are being used more productively

Question 27

How is the asset turnover ratio calculated

Answer 27

As sales revenue / ordinary share capital + reserves + non current liabilities