 ## DragIT - Efficiency ratios

In the image below, try clicking on the arrows beside each variable to see the impact of changes on the efficiency ratios. Once you have done that, you may like to have a go at the questions below. 1

##### Stock changes - stock turnover

When stocks increase the value of the stock turnover ratio will fall.

 a) True b) False Yes, that's correct. The statement is true. When stocks increase the bottom half of the stock turnover ratio (cost of sales divided by stock) will increase. This will reduce the value of the stock turnover ratio.No, that's not right. The statement is true. When stocks increase the bottom half of the stock turnover ratio (cost of sales divided by stock) will increase. This will reduce the value of the stock turnover ratio.Your answer has been saved. 2

##### Debtor changes - debtor days ratio

When debtors fall the value of the debtor days ratio will fall.

 a) True b) False Yes, that's correct. The statement is true. When debtors fall the top half of the debtor days ratio (debtors divided by sales revenue x 365) will decrease. This will decrease the value of the debtor days ratio.No, that's not right. The statement is true. When debtors fall the top half of the debtor days ratio (debtors divided by sales revenue x 365) will decrease. This will decrease the value of the debtor days ratio.Your answer has been saved. 3

##### Current ratio

Which of the following is the correct formula for the stock turnover ratio?

 a) Turnover divided by stock b) Cost of sales divided by stock c) Current assets less stock divided by current liabilities d) Stock divided by cost of sales Please select an answerNo, that's not right. The stock turnover ratio uses cost of sales on the top half of the equation.Yes, that's correct. The stock turnover ratio looks at the rate at which stocks are used.No, that's not right. This is the formula for the acid test ratio and this is a liquidity ratio, not an efficiency ratio.No, that's not right. The variables are right but the formula is the wrong way up.. 4

##### Efficiency ratios

Match the formulae with the appropriate ratios.

 a) Asset turnover ratio Choose... Debtors divided by sales revenue x 365 Sales revenue divided by net assets Cost of sales divided by stock b) Stock turnover ratio Choose... Debtors divided by sales revenue x 365 Sales revenue divided by net assets Cost of sales divided by stock c) Debtor days ratio Choose... Debtors divided by sales revenue x 365 Sales revenue divided by net assets Cost of sales divided by stock Yes, that's correct. Well done.No, that's not quite right. It is important to know these ratios.Your answer has been saved. 