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3.6 True or False Quiz

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  • Unit 3 - Finance/
  • 3.6 Efficiency ratio analysis (HL only)/
  • 3.6 True or False Quiz

Unit 3.6 True or False Quiz - Efficiency ratio analysis (HL only)

To test your understanding of this HL only topic (Efficiency ratio analysis), answer the following true or false questions.

No.StatementTrue or False?
1.Efficiency ratios examine how well a firm uses its resources (assets) in relation to its liabilities.

True

2.The debtor days ratio is calculated with the following formula: (Debtors ÷ Sales revenue) × 365.

True

3.The stock turnover ratio is used to calculate how many times in a given period (typically a year) that the firm's stock needs to be replaced.

True

4.The acid test ratio is an efficiency ratio.

False - it is a liquidity ratio

5.An increase in the stock turnover ratio suggests that the firm's inventory control has improved.

True

6.Stock turnover, debtor days, and creditor days are all examples of efficiency ratios.

True

7.An increase in the debtor days ratio might suggest that sales revenue has grown much faster than cash receipts from customers.

True

8.The formula for calculating the stock turnover ratio (numbers of times) is: Average stock ÷ Cost of sales.

False - refer to formulae on page 64 of the guide

9.A supermarket is likely to have a high stock turnover ratio (based on the "number of times" calculation).

True

10.The debtor days ratio indicates the average number of days a business takes to collect debts from its customers.

True

11.An increase in the creditor days ratio suggests that the timing of payments to suppliers has been delayed.

True

12.The gearing ratio indicates the average number of days a business takes to repay its creditors.

False - this describes the creditor days ratio

13.Offering sales discounts for slow-moving goods (products that take some time to sell) is likely to improve a firm's stock turnover ratio.

True

14.The gearing ratio indicates the extent to which a business is financed by loan capital.

True

15.A decrease in the creditor days ratio might indicate a worsening of payment terms with a supplier.

True

16.A low creditor days ratio is preferable as it enables a business to use the available cash to fulfil its short-term obligations.

False - a longer credit period is preferable for liquidity

17.The creditor days ratio calculated with the following formula: (Creditors ÷ Cost of sales) × 365.

True

18.Stock turnover is less relevant to business in the tertiary sector, such as hair salons or management consultants, because they hold few, if any, tangible products for sale.

True

19.Adopting a just-in-case stock control system is likely to improve a firm's stock turnover ratio.

False - the opposite is true

20.A luxury car dealership is likely to have a low average stock turnover ratio.

True

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