MCQ Quiz

<h3>First Principles Thinking: Turnover = Cost Flow Efficiency</h3><p><strong>A is correct.</strong> Page 4–5 of the PDF explains that higher inventory turnover (and lower DOH) generally signals improved inventory management or lower inventory relative to sales. It does not require high sales growth. A firm may simply be holding less stock for the same sales level, improving efficiency. :contentReference[oaicite:0]{index=0}</p><p>B is wrong because turnover can rise even when sales growth is modest if inventory decreases.</p><p>C is wrong because overproduction typically increases inventory and reduces turnover, the opposite of the pattern observed.</p>

<h3>First Principles Thinking: Turnover Requires Annual Cost Flow</h3><p><strong>A is correct.</strong> Page 2 shows that quarterly COGS should be annualized by ×4 before computing turnover. Annualized COGS = 35,699 × 4 = 142,796. Inventory = 11,869. Turnover = 142,796 ÷ 11,869 ≈ 12.0×. :contentReference[oaicite:1]{index=1}</p><p>B (4×) incorrectly uses quarterly COGS directly.</p><p>C (3×) roughly matches the quarterly turnover, not the required annualized turnover.</p>

<h3>First Principles Thinking: DSO Measures Cash Collection Speed</h3><p><strong>A is correct.</strong> Pages 5–7 state that rising DSO generally signals slower collections or deteriorating customer payment behavior unless explained by strong revenue growth. If revenue growth is modest, delayed payments are the primary cause. :contentReference[oaicite:2]{index=2}</p><p>B is wrong because higher DSO implies worse turnover, not improvement.</p><p>C reverses the relationship: shorter credit terms would normally reduce DSO.</p>

<h3>First Principles Thinking: DSO = Days per Period ÷ Turnover</h3><p><strong>A is correct.</strong> Page 4 shows the computation: DSO = 365 ÷ 9.66 ≈ 37.8 → 38 days. :contentReference[oaicite:3]{index=3}</p><p>B (28 days) corresponds to a turnover of ~13×, which is inconsistent with the example.</p><p>C (45 days) implies significantly slower collections, not supported by the PDF calculation.</p>

<h3>First Principles Thinking: Turnover = Output per Unit of Capital</h3><p><strong>A is correct.</strong> Page 8 explains that a higher working capital turnover indicates greater efficiency—more revenue generated per unit of working capital. It does not mechanically imply liquidity stress. :contentReference[oaicite:4]{index=4}</p><p>B is wrong because higher inventory/receivables would generally reduce the ratio.</p><p>C has no basis in the PDF; liquidity must be assessed using multiple ratios, not turnover alone.</p>

<h3>First Principles Thinking: Book Value Effects on Ratios</h3><p><strong>A is correct.</strong> Page 8–9 explains that new fixed assets appear at higher carrying value, meaning revenue must grow before turnover rises. High asset base → lower turnover, even if efficiency hasn't changed. :contentReference[oaicite:5]{index=5}</p><p>B is wrong because depreciation affects net book value but does not ‘raise’ the denominator; older assets typically have lower book value.</p><p>C is incorrect: depreciation indirectly affects carrying value, not the inclusion/exclusion of depreciation in the ratio.</p>

<h3>First Principles Thinking: Asset Productivity</h3><p><strong>A is correct.</strong> Page 9 explains that a total asset turnover of 1.20 means EUR 1.20 of revenue per EUR 1 of assets. Higher values indicate stronger operational efficiency. :contentReference[oaicite:6]{index=6}</p><p>B is unsupported; turnover does not prescribe optimal asset size.</p><p>C reverses causality: turnover is revenue ÷ assets; multiple revenue-to-asset paths can produce 1.20×.</p>