3.6 Efficiency ratio analysis

Objective notes

3 learning objectives

3.6.1(HL)—Efficiency ratios

• Calculate and interpret stock turnover, debtor days, creditor days, and gearing ratio

• Efficiency ratios evaluate working capital management and financing structure

3.6.2(HL)—Improving efficiency ratios

• Evaluate possible strategies to improve efficiency ratios

• Strategies may target stock control, credit terms, debt collection, supplier payment, and capital structure

3.6.3(HL)—Insolvency and bankruptcy

• Distinguish insolvency and bankruptcy

• Insolvency means inability to meet debts; bankruptcy is a legal status or process