what is Activity Ratio and What are its types and their formulas?
- cactusgeneLv 77 years agoFavorite Answer
Definition of 'Activity Ratios':
Accounting ratios that measure a firm's ability to convert different accounts within its balance sheets into cash or sales. Activity ratios are used to measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items. These ratios are important in determining whether a company's management is doing a good enough job of generating revenues, cash, etc. from its resources.
Investopedia explains 'Activity Ratios':
Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. Such ratios are frequently used when performing fundamental analysis on different companies. The total assets turnover ratio and inventory turnover ratio are two popular examples of activity ratios used widely across most industries.
Here are the formulas used: