3.6 Efficiency ratio analysis (HL)

Question 1

Efficiency ratios

Answer 1

Used to measure how well an organization uses its resources

Question 2

Stock turnover ratio

Answer 2

Calculate how many times a firm’s inventory needs to be replaced in a given time period.

Question 3

Stock turnover formula

Answer 3

(number of times) = cost of goods sold/average stock

(number of days) = average stock/ cost of goods sold * 365

Question 4

Debtor days ratio (number of days)

Answer 4

Debtors/ Total sales revenue *365

Question 5

Creditor days ratio (number of days)

Answer 5

Creditors/Cost of goods sold * 365

Question 6

Gearing ration

Answer 6

Measure the efficiency and financial risk

Loan capital/Capital employed * 100