ConceptConceptDocsDocuments

IB Business Management SL 3.5.3 Liquidity ratios Question Bank

Practise IB Business Management SL/HL 3.5.3 by applying liquidity ratios concepts to exam-style questions.

Syllabus
First assessment 2024
Course
Business management SL
Level
SL

Exam points

  • identify the relevant model, concept or evidence
  • apply the correct subject framework to the question
  • evaluate the result using clear evidence and subject terminology

3.5.3—Liquidity ratios question 1

[Maximum number: 7]

LuxEclairage (LE)


LuxEclairage (LE) was founded by Maurice Dahman, an Electrical Engineer from Algeria. He has a degree in electrical engineering and is fluent in French. In 2007, after 12 years working for a large lighting business in Luxembourg, Maurice established LE. His business produces energy-efficient parts for various indoor and outdoor lighting.
L E has a unique selling point (USP): the lowest price in the market. Although most sales are in Europe, all production is in Algeria, where costs are much lower. As a result, growth in sales revenue has been rapid and significant, and L E has gained market share each year.
Selected financial information for L E (all figures in €m):

Table for Question 3.5.3—Liquidity ratios question 1 — IB Business Management SL

With the rapid growth in sales revenue since it was first established, L E has experienced some diseconomies of scale, especially in the administration of the business. Production occurs in 12 small factories located around the city of Algiers, rather than in one large factory. Coordination between factories and the administrative offices is, therefore, complicated, and the internet is sometimes unavailable. Whereas French is the language used by managers and customers of L E, the workers generally speak only basic French and prefer to speak Arabic. In addition, patterns of non-verbal communication differ widely between Europe and Algeria.

Question (a)

(a)

Calculate for L E :

[ 4 ]

Question (i)

(i)

the current ratio for 2009 and 2013.

[ 2 ]

Question (ii)

(ii)

the acid test (quick) ratio for 2009 and 2013.

[ 2 ]

Question (b)

(b)

Comment on the decline in liquidity at L E.

[ 3 ]
All question bank results loaded