19.2.4. Efficiency or Activity Ratios

Try these first

1. 1.

   What formula is used for the Inventory Turnover Ratio?

   Hint

   Consider how quickly inventory moves through the business.

2. 2.

   What does a high Debtors Turnover Ratio indicate?

   Hint

   Think about how this affects cash flow.

3. 3.

   What is the Inventory Turnover Ratio?

   • Cost of Goods Sold / Average Inventory
   • Net Sales / Average Accounts Receivable
   • Total Assets / Net Sales

   Hint

   Remember how inventory relates to cost management.

4. 4.

   True or False: A higher Debtors Turnover Ratio is generally seen as positive.

   • True
   • False

   Hint

   Consider the impact on cash flow.

5. 5.

   A tech startup has net sales of $1,500,000, with total assets of$750,000, average accounts receivable of $100,000, and cost of goods sold of$900,000. Calculate the Inventory Turnover Ratio, Debtors Turnover Ratio, and Total Asset Turnover Ratio.

   Hint

   Use the respective formulas for each ratio.

6. 6.

   Discuss the impact on a company's operational strategy if its Total Asset Turnover Ratio drops significantly over two years.

   Hint

   Consider what that means for sales and future profitability.