Which of the following is an example of an efficiency ratio?

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Multiple Choice

Which of the following is an example of an efficiency ratio?

Efficiency ratios measure how well a firm uses its assets to support sales and cash flow. An accounts receivable turnover ratio fits here because it shows how quickly the company collects its credit sales, turning receivables into cash. It’s calculated by dividing net credit sales by average accounts receivable, and a higher turnover indicates faster collections and better asset utilization in this area. The other options focus on different aspects: debt-to-equity looks at leverage and financial risk, the current ratio gauges short-term liquidity, and return on equity assesses profitability relative to shareholders’ equity.

Efficiency ratios measure how well a firm uses its assets to support sales and cash flow. An accounts receivable turnover ratio fits here because it shows how quickly the company collects its credit sales, turning receivables into cash. It’s calculated by dividing net credit sales by average accounts receivable, and a higher turnover indicates faster collections and better asset utilization in this area. The other options focus on different aspects: debt-to-equity looks at leverage and financial risk, the current ratio gauges short-term liquidity, and return on equity assesses profitability relative to shareholders’ equity.

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