CIPS L4m4 Ethical And Responsible Sourcing · Free Practice Question Medium

Question 8

Greg is doing some research on a potential supplier and is concerned that the supplier's funding is based on long-term debts and loans. Working with this supplier therefore might bring additional risks to Greg's business. What should Greg do about his concerns?
  • A use the Return on Investment Ratio
  • B do an Acid Test
  • C work out the supplier's EBITDA
  • D work out the supplier's gearing ratio
Reveal correct answer

Correct answer: D

Explanation

Greg needs to use a gearing ratio. Gearing is a measure of how the business is being funded and is based on the ratio of debt to equity


p.44. Gearing comes up a lot in the exam. Also make sure you know what Return on Investment, Acid Test and EBITDA are.


Return on Investment (ROI): How to Calculate It and What It Means (investopedia.com)

EBITDA: Definition, Calculation Formulas, History, and Criticisms (investopedia.com)

Acid-Test Ratio: Definition, Formula, and Example (investopedia.com)

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