Financial Efficiency Ratios Quiz

What is the primary purpose of efficiency ratios in a business?

• To determine the market value of a business

• To evaluate how efficiently a business uses its assets and liabilities

• To measure the profitability of a business

• To assess the employee satisfaction in a business

How is the trade receivable days ratio calculated?

• Credit sales divided by trade receivables, multiplied by 365

• Total sales divided by trade receivables, multiplied by 365

• Trade receivables divided by credit sales, multiplied by 365

• Trade receivables divided by total sales, multiplied by 365

What does a lower trade receivable days figure indicate for a business?

• The business is paying its creditors faster

• The business is taking longer to collect money from debtors

• The business is holding onto its stock longer

• The business is collecting money from debtors faster

What does the trade payable days ratio measure?

• The average time a business takes to generate sales

• The average time a business holds onto its inventory

• The average time a business takes to collect from its debtors

• The average time a business takes to pay its creditors

Why is a higher trade payable days figure generally better for a business?

• It suggests the business is selling its inventory quicker

• It shows the business is collecting from debtors faster

• It means the business is holding onto its money longer

• It indicates the business is paying its creditors faster

What is the golden rule in business regarding debtors and creditors?

• Collect money from debtors as soon as possible and pay creditors as late as possible

• Pay creditors as soon as possible and collect from debtors as late as possible

• Collect money from debtors and creditors as soon as possible

• Pay creditors and collect from debtors as late as possible

Why is it important to adhere to agreed payment terms with debtors and creditors?

• To avoid liquidity problems and maintain good relationships

• To increase the business's market value

• To ensure faster inventory turnover

• To reduce the business's tax liabilities

What does the inventory turnover ratio indicate?

• The average time a business takes to generate sales

• The average time a business takes to collect from its debtors

• The average time a business holds onto its stock

• The average time a business takes to pay its creditors

How is the inventory turnover ratio calculated?

• Average inventory divided by total sales, multiplied by 365

• Cost of sales divided by average inventory, multiplied by 365

• Total sales divided by average inventory, multiplied by 365

• Average inventory divided by cost of sales, multiplied by 365

What does a lower inventory turnover rate generally indicate?

• The business is paying its creditors faster

• The business is holding onto its stock longer

• The business is collecting from debtors faster

• The business is selling its stock faster