Efficiency Ratios Quiz

What is the formula for Asset Turnover Ratio?

• Total Assets / Net Sales

• Net Income / Total Assets

• Gross Profit / Total Assets

• Net Sales / Average Total Assets

Calculate the Asset Turnover Ratio if the total sales are $500,000 and the average total assets are $250,000.

• 0.5

• 2

• 3

• 1.5

Explain the significance of a high Asset Turnover Ratio.

• A high Asset Turnover Ratio signifies efficient use of assets to generate revenue.

• A high Asset Turnover Ratio signifies excessive investment in non-revenue generating assets.

• A high Asset Turnover Ratio signifies low profitability.

• A high Asset Turnover Ratio signifies poor use of assets to generate revenue.

How is the Accounts Receivable Turnover Ratio calculated?

• Gross profit divided by net credit sales

• Net income divided by average accounts receivable

• Total sales divided by total assets

• Net credit sales divided by average accounts receivable

If a company has net credit sales of $300,000 and the average accounts receivable is $60,000, what is the Accounts Receivable Turnover Ratio?

• 10

• 3.5

• 0.2

• 5

What does a low Accounts Receivable Turnover Ratio indicate about a company's credit policies?

• Indicates high profitability

• No impact on credit policies

• Too lenient

• Too strict

Define Days Sales Outstanding (DSO).

• A measure of the company's advertising expenses

• A measure of how many days a company has been in operation

• A measure of how long it takes for a company to collect payment after a sale has been made.

• A measure of the company's total assets

If a company has annual sales of $1,000,000 and the average accounts receivable is $200,000, what is the Days Sales Outstanding?

• 73 days

• 100 days

• 365 days

• 50 days

Explain the impact of a high Days Sales Outstanding on a company's cash flow.

• High Days Sales Outstanding reduces cash flow by increasing accounts payable

• High Days Sales Outstanding has no impact on cash flow

• High Days Sales Outstanding reduces cash flow by tying up cash in accounts receivable.

• High Days Sales Outstanding increases cash flow by speeding up accounts receivable