MCQ Quiz

Question 1 of 7

Using the Lenovo example on page 4, receivables turnover for FY2018 is approximately 9.66× and the year has 365 days. What is the DSO?

38 days
28 days
45 days

Question 2 of 7

A company’s inventory turnover rises from 3.2× to 4.0×, but its sales have grown only modestly. Based strictly on the PDF’s interpretation of activity ratios, what is the most likely explanation?

Inventory management has improved, or inventory levels have fallen relative to sales.
Sales must have grown at least proportionally more than inventory, making the turnover rise unavoidable.
The higher turnover necessarily means the company is overproducing relative to demand.

Question 3 of 7

The PDF emphasizes that DSO should be interpreted alongside revenue trends. If a firm’s DSO increases while revenue grows only slightly, what is the most defensible explanation?

Customers are taking longer to pay, potentially weakening credit quality.
Receivables turnover has improved because sales increased.
The firm has shortened credit terms, causing higher DSO temporarily.

Question 4 of 7

A company has a total asset turnover of 1.20×. Based strictly on the PDF, what does this indicate?

The company generates EUR 1.20 in revenue for every EUR 1 of assets, suggesting relatively efficient use of assets.
The company’s asset base is too small and must be expanded to sustain operations.
The company’s revenue must grow more slowly than assets for this ratio to occur.

Question 5 of 7

A company reports quarterly cost of goods sold of EUR 35,699 and ending inventory of EUR 11,869 (page 2 example). Using the PDF’s method for annualizing quarterly COGS (multiply by 4), what is the annualized inventory turnover?

12.0×
4.0×
3.0×

Question 6 of 7

The PDF states that a working capital turnover of 4.0 means the company generates EUR 4 of revenue per EUR 1 of working capital. If this ratio increases to 6.0, what is the cleanest interpretation consistent with the PDF?

The company is using working capital more efficiently to generate revenue.
The firm must have increased its inventory and receivables significantly.
This always implies a deterioration in liquidity despite higher turnover.

Question 7 of 7

The PDF states that fixed asset turnover may be lower for companies with newly acquired assets. Why?

Newer assets are carried at a higher book value, causing turnover to be mechanically lower until revenue grows.
Newer assets reduce depreciation, which directly raises the denominator of the turnover ratio.
Fixed asset turnover excludes depreciation entirely, making newer assets appear less productive.

Activity Ratios Pre

First Principles Thinking: DSO = Days per Period ÷ Turnover

First Principles Thinking: Turnover = Cost Flow Efficiency

First Principles Thinking: DSO Measures Cash Collection Speed

First Principles Thinking: Asset Productivity

First Principles Thinking: Turnover Requires Annual Cost Flow

First Principles Thinking: Turnover = Output per Unit of Capital

First Principles Thinking: Book Value Effects on Ratios