3.6 Glossary of key terms

Unit 3.6 Glossary of key term - Efficiency ratios (HL only)

Key term	Definition (HL only)
Bankruptcy	Sometimes referred to receivership or corporate liquidation, this means a situation when a person or business declares that they can no longer pay back their debts, so the entity collapses (fails).
Creditor days ratio	The efficiency ratio that measures the average number of days an organization takes to repay its creditors (suppliers who the business has bought products from using trade credit, so have yet to pay for these).
Debtor days ratio	The efficiency ratio that measures the average number of days an organization takes to collect debts from its customers (as they have bought goods and services on trade credit but have yet to pay for these).
Efficiency ratio	Financial planning and decision-making tool to measure how well the resources of a business are used in order to generate income from the firm’s capital.
Gearing ratio	The efficiency ratio that measures the extent to which an organization is financed by external sources of finance (i.e. loan capital as a percentage of the firm’s total capital employed).
Insolvency	Refers to the situation where a person or a business is unable to meet their bill and other debt obligations. The debts (liabilities) of the individual or organization exceed their assets.
Stock turnover ratio	The efficiency ratio that measures the number of days it takes a business to sell its stock (inventory). The ratio can also show the number of times during any given period of time (usually a year) that the business restocks or replaces its inventory.

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