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)
Discussion
Think the marked answer is wrong, or have a better explanation? Share it below — comments appear after review.
You must be logged in to post a comment.
