CIPS Exam L4M4 Topic 3 Question 37 Discussion

Actual exam question for CIPS's L4M4 exam

Question #: 37
Topic #: 3

[All L4M4 Questions]

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?

Ause the Return on Investment Ratio

Bdo an Acid Test

Cwork out the supplier's EBITDA

Dwork out the supplier's gearing ratio

Show Suggested Answer

Suggested Answer: D

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 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)

by Leeann at Jul 10, 2025, 02:34 AM

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Yesenia

14 days ago

I think Greg should consider both the Acid Test and the gearing ratio to make an informed decision.

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Loreta

21 days ago

But wouldn't working out the supplier's gearing ratio also provide valuable insight into their financial stability?

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Gertude

25 days ago

Personally, I think Greg should just go with the supplier who can give him the best discounts. Forget all this financial mumbo-jumbo, it's all about the bottom line!

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Terrilyn

27 days ago

Haha, Greg's probably wishing he had a crystal ball to see the supplier's future. But hey, at least he's not asking the Magic 8-Ball for advice, right?

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Ilene

29 days ago

I agree with Jerlene, an Acid Test would help assess the supplier's financial health.

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Dortha

1 months ago

A) Return on Investment Ratio? Really? That's like trying to put out a fire with a squirt gun. Gotta go with D) for this one.

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Cyril

17 days ago

User 1

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Charlesetta

1 months ago

B) Acid test, baby! Forget the other options, this is the real deal when it comes to gauging a supplier's liquidity.

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Miles

1 months ago

Hmm, I'd say C) EBITDA is the best choice. It'll show how much cash the supplier is generating, which is crucial for assessing their long-term viability.

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