Question 3.A.13: What do you deduce from a comparison of the efficiency ratio...
What do you deduce from a comparison of the efficiency ratios over the two years?
Maintaining the inventories turnover period at the 2015 level might be reasonable, although we need to know the planned inventories period to make a proper assessment. The inventories turnover period for other businesses operating in carpet retailing, particularly those regarded as the market leaders, may have been helpful in formulating the plans. On the face of it, a shorter trade receivables settlement period and a longer trade payables settlement period are both desirable. However, this may have been achieved at the cost of a loss of goodwill among customers and suppliers. The increased sales revenue to capital employed ratio seems beneficial, provided that the business can manage this increase. The decline in the sales revenue per employee ratio is undesirable but is probably related to the dramatic increase in the number of employees. As with the inventories turnover period, these other ratios need to be compared with planned, or target, ratios.