Practice 3.6 Efficiency ratio analysis (HL only) with authentic IB Business Management exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like systems and structures, human behavior and interaction, and sustainability and ethics. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
Paper
Level
Question 1
HLPaper 3
LuminaCare
Resource 1 – Company profile and financial context
LuminaCare is a Ghana-based, for-profit social enterprise that manufactures solar-powered medical devices for rural clinics and maternal health centers across Sub-Saharan Africa. Its flagship product is a solar fetal heart monitor, which allows midwives to detect complications during pregnancy without relying on grid electricity. The company raised seed capital from impact investors but has now reached an inflection point: demand has grown by 300%, and LuminaCare must decide whether to pursue a $2.5M Series A equity round or take on $1.2M in concessional debt from a development bank.
Resource 2 – CFO’s internal memo (Finance)
“Our burn rate is steady, but we’ve reached our credit limit with suppliers. We operate on 90-day payment terms with clinics, so cash flow is always tight. Series A equity gives us the scale to meet demand and build a second facility—but would dilute founder control and introduce board-level oversight. The concessional loan is low-interest and non-dilutive but comes with covenants: quarterly EBITDA targets, strict capex limits, and donor-style reporting. Any miss could trigger loan restructuring or early repayment.”
Resource 3 – HR performance dashboard (Q1–Q2 2025)
| Metric | Value |
|---|---|
| Staff turnover (last 6 months) | 22% |
| Time to fill technical roles | 49 days (↑ 24%) |
| % of roles with formal job descriptions | 58% |
| Managerial span of control | Avg. 12 direct reports |
| Avg. team engagement score | 67/100 (↓ from 78) |
| The head of HR notes that burnout and unclear career paths are leading to attrition, especially among product engineers and field deployment staff. |
Resource 4 – Marketing team proposal
“Clinics love our mission—but most have no idea who we are until we show up at trade shows. We need to invest in inbound marketing, including a multilingual website, CRM tools, and a referral rewards program for midwives. More crucially, we’re perceived as a donor-funded nonprofit, not a serious tech company. To attract hospital procurement officers and larger buyers, we must reposition the brand to emphasize product quality, not just affordability and ethics.”
Resource 5 – Email thread: CEO to CFO and Marketing Lead
Resource 6 – Feedback from key field partners
“We rely on LuminaCare’s devices, but their response time for repairs has worsened.” “Sometimes we get different pricing from different reps. There’s no standard process.” “I love the mission—but our procurement officer wants a brand that feels serious. A logo change isn’t enough.”
1.[2]
With reference to Resource 3, describe one HR issue that may be impacting LuminaCare’s ability to scale sustainably.
2.[6]
Explain one financial challenge and one marketing challenge LuminaCare may face if it accepts the concessional loan.
3.[17]
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for LuminaCare over the next five years.
Question 2
HLPaper 2
FreshSteps Foundation
FreshSteps Foundation is a non-profit social enterprise based in Kenya that installs small-scale water filtration systems in rural communities. It operates as a private limited company (Ltd) but reinvests all surplus profits to expand its social impact rather than paying dividends.
Its business objectives include achieving financial sustainability and maintaining a minimum return on capital employed (ROCE) of 5% to fund future installations without relying heavily on grants.
Table 1: Statement of Profit or Loss for FreshSteps Foundation for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 2,600 |
| Cost of sales | 1,300 |
| Operating expenses | 1,050 |
| Depreciation expense | 100 |
| Interest expense | 40 |
| Tax | — (tax-exempt) |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 3,500 |
| Current assets | 480 |
| Current liabilities | 400 |
| Initial investment for new project | 800 |
| Net annual cash inflow from project | 220 |
1.[2]
Calculate the gross profit for FreshSteps Foundation. Show all your working.
2.[2]
State why FreshSteps Foundation is tax exempt.
3.[2]
Calculate the current ratio for FreshSteps Foundation. Show all your working.
4.[2]
Calculate the payback period for the new project. Show all your working.
5.[2]
Explain one financial challenge that FreshSteps Foundation may face by relying on project-based cash inflows.
Question 3
HLPaper 2
SkyGen Ltd.
SkyGen Ltd. is a software company that previously operated using a traditional hierarchical structure with centralized decision-making. After losing several talented developers, the company began restructuring project teams and moving toward a flatter matrix system.
SkyGen has also updated its performance appraisal process and begun introducing self-managed development plans. The HR director is piloting new methods for evaluating staff performance while linking role enrichment to innovation output.
Table 1. Statement of Financial Position: SkyGen Ltd. (as at 31 December 2023) (All figures in $m)
| Description | $m |
|---|---|
| Property, plant and equipment | 1,800 |
| Accumulated depreciation | (600) |
| Non-current assets | 1,200 |
| Cash | 300 |
| Debtors | 450 |
| Stock | 250 |
| Current assets | 1,000 |
| Total assets | 2,200 |
| Trade creditors | 200 |
| Short-term loans | 200 |
| Current liabilities | 400 |
| Long-term borrowings | 300 |
| Total liabilities | 700 |
| Net assets | 1,500 |
| Retained earnings | 1,500 |
| Total equity | 1,500 |
Additional information:
- The PP&E figure includes $900m of specialized hardware expected to last 6 years.
- In 2023, that equipment was used to produce 15,000 units out of an expected 90,000-unit lifetime.
- Annual sales = $3,600m, of which 50% are credit sales.
- SkyGen previously used top-down summative appraisals but now trials peer-led feedback and project-based self-evaluations.
1.[2]
Calculate units-of-production depreciation for the year
2.[2]
Calculate SkyGen Ltd.’s debtor days.
3.[2]
Distinguish between summative and self-appraisal, using SkyGen Ltd. as context.
4.[2]
Explain how job enrichment and delayering might support SkyGen Ltd.’s move to a matrix structure.
5.[2]
Identify one limitation of bureaucracy in SkyGen’s previous structure
Question 4
HLPaper 2
ZenMoto Ltd.
ZenMoto Ltd. is a Japanese company that manufactures electric scooters designed for city commuting. To improve operational efficiency, ZenMoto has implemented lean production techniques such as just-in-time (JIT) inventory management, kaizen (continuous improvement), and quality circles across its factories. It is also reviewing its production planning processes to better match seasonal demand fluctuations.
The company plans to expand into new Southeast Asian markets and needs funding for a new manufacturing plant. The finance department has provided key efficiency data and is evaluating whether internal cash flows are sufficient or if external sources of finance are needed.
Table 1: Selected Financial Data – ZenMoto Ltd. (2024)
| Item | Amount (¥) |
|---|---|
| Revenue | 8,500,000,000 |
| Cost of goods sold | 5,200,000,000 |
| Operating expenses | 2,700,000,000 |
| Net profit | 600,000,000 |
| Capital employed | 5,000,000,000 |
1.[2]
Explain one way lean production techniques could improve ZenMoto Ltd.'s operational efficiency.
2.[2]
Calculate the return on capital employed (ROCE) for ZenMoto Ltd. Show all your working.
3.[2]
Comment on how ZenMoto Ltd.’s ROCE result might influence its decision to use internal or external finance for expansion.
4.[2]
Suggest one internal and one external source of finance ZenMoto Ltd. could consider for the new manufacturing plant.
5.[2]
Suggest how improvements in production planning could contribute to better financial performance at ZenMoto Ltd.
Question 5
HLPaper 2
UrbanNest Ltd.
UrbanNest Ltd. is a UK-based furniture company that designs and sells compact, modular pieces for urban apartments. Originally founded as a partnership, it restructured into a private limited company (Ltd.) to raise capital for growth. Its business objectives include increasing market share by 10% annually and maintaining a ROCE of 15%. Following strong domestic sales, UrbanNest is planning to launch a new e-commerce platform to support international expansion into Southeast Asia.
While revenue growth remains steady, rising marketing spend and inventory costs have placed pressure on liquidity. The finance team has shared final account data for 2024, revealing tight cash reserves and slower inventory turnover due to new customisable product lines. The company is now exploring funding options to support its expansion plan.
Table 1: Selected Financial Data – UrbanNest Ltd. (2024)
| Item | Amount (£) |
|---|---|
| Revenue | 2,800,000 |
| Cost of goods sold | 1,600,000 |
| Operating expenses | 900,000 |
| Net profit | 300,000 |
| Capital employed | 2,000,000 |
| Average stock | 320,000 |
1.[2]
Explain one advantage for UrbanNest Ltd. in changing from a partnership to a private limited company.
2.[2]
Calculate the return on capital employed (ROCE) and for UrbanNest Ltd. Show all your working.
3.[2]
Comment on whether UrbanNest Ltd. has achieved its financial objective based on your ROCE calculation.
4.[2]
Suggest one internal and one external source of finance UrbanNest Ltd. could use to fund its e-commerce platform investment.
5.[2]
Explain how UrbanNest Ltd.'s type of business entity and financial performance may influence its access to finance.
Question 6
HLPaper 2
SkyGlide Ltd.
SkyGlide Ltd. is a UK-based manufacturer of premium travel backpacks and accessories. In early 2024, the company launched a major expansion into Southeast Asian markets after adjusting elements of its marketing mix to better suit local consumer preferences. The expansion was supported by a new marketing plan focusing on luxury positioning and partnerships with local influencers.
Despite the brand’s strong reputation in Europe, the finance team noticed early signs that sales growth in the new markets was slower than projected. Management has provided the final accounts and key financial data from Q2 2024 for review.
Table 1: Selected Financial Data – SkyGlide Ltd. (Q2 2024)
| Item | Amount (£) |
|---|---|
| Forecasted sales revenue | 4,500,000 |
| Actual sales revenue | 3,800,000 |
| Cost of goods sold (actual) | 2,000,000 |
| Operating expenses (actual) | 1,400,000 |
| Net profit (actual) | — |
| Capital employed | 6,000,000 |
| Current assets | 1,300,000 |
| Current liabilities | 950,000 |
1.[2]
Calculate the sales revenue variance for SkyGlide Ltd. Show all your working.
2.[2]
Calculate the actual net profit and the net profit margin for Q2 2024. Show all your working.
3.[2]
Calculate the return on capital employed (ROCE) for SkyGlide Ltd. Show all your working.
4.[2]
Comment on what the financial results reveal about SkyGlide’s international marketing performance.
5.[2]
Suggest two ways SkyGlide Ltd. could adapt its marketing mix to better meet the needs of international consumers.
Question 7
HLPaper 2
RapidFit Gym
RapidFit Gym is a small chain of fitness centers offering affordable memberships and group classes. The company has seen consistent growth over the past five years but is now facing increased competition from boutique fitness studios and online fitness platforms.
RapidFit is considering investing in a new gym location or upgrading its existing facilities to attract more members. The management is also concerned about operational inefficiencies, particularly with inventory management for gym equipment and receivables from corporate clients who pay for bulk memberships.
The following financial data is provided for the year ending December 31, 2023:
| Financial Metric | Value (USD) |
|---|---|
| Revenue | 2,000,000 |
| Cost of Goods Sold (COGS) | 1,200,000 |
| Operating Expenses | 600,000 |
| Net Profit | 200,000 |
| Average Inventory | 100,000 |
| Average Accounts Receivable | 120,000 |
| Initial Investment for New Gym | 1,000,000 |
| Initial Investment for Upgrade | 500,000 |
| Projected Annual Cash Flow (Gym) | 200,000 |
| Projected Annual Cash Flow (Upgrade) | 120,000 |
| Discount Rate | 10% |
| Useful Life (years) | 5 |
1.[4]
Calculate the payback period and net present value (NPV) for both investment options (new gym location and upgrade).
2.[4]
Using the provided data, analyze RapidFit’s inventory turnover ratio and evaluate its operational efficiency.
3.[4]
Explain the impact of inefficiencies in receivables management on RapidFit’s liquidity and suggest strategies to address this issue.
Question 8
HLPaper 3
GreenTech Innovations
Resource 1 - Company Overview
GreenTech Innovations is a renewable energy firm founded in 2018, focusing on developing and deploying solar and wind energy solutions for both residential and commercial clients. With a mission to combat climate change and promote sustainable energy consumption, the company has seen significant growth due to increasing demand for green technologies.
CEO Rachel Thompson emphasizes, "Our goal is to make renewable energy accessible and affordable for everyone, but we face challenges in maintaining profitability while expanding our operations." Despite positive market reception, rising operational costs and competition in the renewable energy sector are pressing issues for GreenTech.
Resource 2 - Financial Performance Report (2023)
GreenTech Innovations
Financial Performance Summary for 2023
| Metric | Amount |
|---|---|
| Revenue | £5,000,000 |
| Gross Profit | £2,000,000 |
| Operating Expenses | £1,200,000 |
| Net Profit | £800,000 |
| Total Assets | £3,500,000 |
| Total Liabilities | £1,500,000 |
| Equity | £2,000,000 |
The company's revenue has increased by 25% from the previous year, but operating expenses have also risen due to investments in new technology and increased staffing costs, raising concerns about long-term profitability.
Resource 3 - Letter from the CFO
Subject: Financial Strategy Update
Dear Rachel,
As we analyze our current financials, it’s essential to develop strategies that balance our growth with profitability.
Here are my suggestions:
Streamline Operations: Assess areas where we can reduce costs without compromising service quality.
Explore New Markets: Consider expanding into regions with lower competition for renewable energy.
Invest in Technology: Leverage automation to enhance operational efficiency and reduce labor costs.
Looking forward to discussing this at our next meeting.
Best,
John Miller, CFO
Resource 4 - Interview with the CEO
In an interview with Eco Business News, CEO Rachel Thompson discussed GreenTech's vision and challenges. "The renewable energy sector is rapidly evolving, and while we are excited about our growth, we must remain vigilant about our operational efficiency.
Our commitment to sustainability and customer satisfaction drives our decisions, but profitability is critical for our long-term success. We're considering partnerships with other tech firms to innovate further."
Resource 5 - Social Media Announcement
1.[2]
Using an appropriate business management theory, identify a human need that GreenTech Innovations products satisfy for their target consumers.
2.[6]
Outline two challenges GreenTech Innovations faces in maintaining profitability. Support your answer with evidence from the resources.
3.[17]
Based on the resources and your business knowledge, recommend a comprehensive strategy to enhance GreenTech Innovations profitability and sustainability over the next five years. Your strategy should consider cost management, market expansion, technological innovations, and consumer engagement initiatives.
Question 9
HLPaper 2
TerraCraft Ltd (TC)
TerraCraft Ltd (TC) manufactures sustainable furniture products in Sweden. Due to increasing demand, TC is considering investing in a new production facility. To determine the viability of this investment, TC’s finance team has performed an investment appraisal, calculating payback periods and net present value (NPV).
To enhance efficiency and productivity, TC is also evaluating its current operations methods, debating a shift from job production to batch or flow production. The company recently analyzed its operational performance using efficiency ratio analysis, revealing lower-than-expected inventory turnover and declining productivity ratios.
TC has a strong, environmentally-driven organizational culture valued by its stakeholders. However, stakeholders, including employees and environmental activists, are concerned that rapid operational expansion and changes in production methods could negatively affect this culture and TC’s sustainability commitments.
1.[2]
Define the term ‘investment appraisal’.
2.[4]
Explain two potential stakeholder conflicts that might result from TC changing its operations methods.
3.[4]
Explain two benefits for TC of using efficiency ratio analysis.
4.[4]
Outline two ways TC’s strong organizational culture contributes to its business success.
5.[10]
Examine whether TC should switch from job production to flow production to improve efficiency, considering stakeholder concerns, organizational culture, and investment appraisal results.
Question 10
HLPaper 2
ClearView Tech
ClearView Tech is a company that designs and manufactures innovative smart glass products for residential and commercial buildings. These products allow users to control the amount of light and heat entering a room, reducing energy consumption. The company has been profitable in recent years but faces rising production costs and increasing competition from new entrants.
To address these challenges, ClearView Tech is considering two investment options: (1) launching a new automated production line to improve efficiency and reduce costs, or (2) expanding its product range to include a budget-friendly version of its smart glass. The management is also planning to refine its budgeting system to better control operating expenses and improve cash flow management.
Below is selected financial data for ClearView Tech for the year ending December 31, 2023:
Investment Options
| Financial Metric | Automated Line | New Product Range |
|---|---|---|
| Initial Investment (USD) | 2,500,000 | 1,800,000 |
| Projected Annual Cash Flow (USD) | 600,000 | 450,000 |
| Useful Life (years) | 5 | 5 |
| Residual Value (USD) | 500,000 | 200,000 |
| Discount Rate | 10% | 10% |
Additional Company Financial Data
| Financial Metric | Value (USD) |
|---|---|
| Revenue | 10,000,000 |
| Cost of Goods Sold (COGS) | 6,000,000 |
| Operating Expenses | 2,500,000 |
| Net Profit | 1,500,000 |
| Average Inventory | 400,000 |
| Average Accounts Receivable | 600,000 |
| Average Accounts Payable | 350,000 |
| Marketing Budget | 700,000 |
| Capital Budget | 3,000,000 |
1.[4]
Using the data provided, calculate and analyze the inventory turnover and receivables days ratios for ClearView Tech. Evaluate how these ratios reflect the company’s efficiency.
2.[4]
Calculate the net present value (NPV) for both investment options (Automated Line and New Product Range). Recommend which investment ClearView Tech should pursue based on your calculations.
3.[4]
Analyze the importance of budgeting in managing ClearView Tech’s financial resources, particularly in relation to these investment decisions.
4.[10]
Evaluate the strategic implications of the automated production line compared to the new product range in addressing ClearView Tech’s challenges.