Efficiency Ratios in Business Finance

Steps:

• Recall that efficiency ratios assess how well a business uses assets to generate revenue.
• Evaluate each option: acid test checks liquidity; mark-up sets pricing; non-current asset turnover measures asset utilization; return on capital employed gauges profitability.
• Identify non-current asset turnover as the ratio linking sales to fixed assets, directly indicating operational efficiency.
• Confirm by excluding liquidity, pricing, and profitability metrics.

Why C is correct:

• Non-current asset turnover = sales revenue / non-current assets, measuring how efficiently fixed assets generate sales.

Why the others are wrong:

• A: Acid test ratio assesses short-term liquidity by comparing quick assets to current liabilities.
• B: Mark-up calculates profit margin on cost price, not overall business efficiency.
• D: Return on capital employed evaluates profitability as operating profit / capital employed.

Final answer: C