Financial Indicators

Question 1

What is the Inventory Turnover formula?

Answer 1

Average Inventory / Cost of Goods Sold × 365

Question 2

What can cause Inventory Turnover to slow down?

Answer 2

• Higher inventory levels (increase in Average Inventory).
• Lower sales or demand for products (decrease in Cost of Goods Sold).
• Stocking slow-moving or obsolete goods.

Question 3

What can cause Inventory Turnover to get faster?

Answer 3

• Lower inventory levels (decrease in Average Inventory).
• Higher sales volume (increase in Cost of Goods Sold).
• More efficient inventory management (e.g., just-in-time stock control).

Question 4

How can we improve Inventory Turnover?

Answer 4

• Reduce inventory levels by ordering smaller quantities more frequently.
• Discount slow-moving stock to encourage sales.
• Improve sales strategies (e.g., promotions, better product placement).
• Implement better inventory management techniques, such as FIFO (First In, First Out).

Question 5

What is the Accounts Receivable Turnover?

Answer 5

Average accounts receivable / Net credit sales (plus GST) x 365

Question 6

What can cause Accounts Receivable Turnover to slow down?

Answer 6

• Offering longer credit terms to customers.
• Customers delaying payments (increase in Average Accounts Receivable).
• Ineffective credit collection policies.

Question 7

What can cause Accounts Receivable Turnover to get faster?

Answer 7

• Stricter credit policies (shorter payment terms).
• Offering early payment discounts.
• Improved collection efforts (e.g., follow-ups, reminders).

Question 8

How can we improve Accounts Receivable Turnover?

Answer 8

• Reduce credit terms (e.g., from 60 days to 30 days).
• Offer early payment discounts to encourage faster payment.
• Conduct credit checks on customers before granting credit.
• Actively follow up on overdue accounts.

Question 9

What can we compare to measure our Accounts Receivable Turnover?

Answer 9

• Industry averages.
• Previous reporting periods.
• Budgeted figures.
• Accounts Payable Turnover

Question 10

What are some advantages of paying our supplier back quickly?

Answer 10

• Potential early payment discounts.
• Improved relationships with suppliers.
• Better credit rating and reputation.
• Possible priority treatment for future stock orders.

Question 11

What are some disadvantages of paying our supplier back late?

Answer 11

• Late payment penalties or interest charges.
• Strained supplier relationships, leading to restricted credit terms.
• Risk of supply disruptions if suppliers refuse to provide goods.
• Negative impact on business reputation.

Question 12

What is the accounts payable turnover?

Answer 12

Average Accounts payable / Net credit purchases (plus GST) x 365

Question 13

Strategies for managing Accounts Payable?

Answer 13

• Develop a strong relationship with each supplier
• Pay within, but as close as possible to, the credit terms
• Pay early to earn discount revenue (if available and affordable)

Question 14

What can we compare to measure our Accounts Payable Turnover?

Answer 14

• Industry averages.
• Previous reporting periods.
• Budgeted figures.