ACTIVITY RATIOS

KNOWLEDGE SHALA BY NIDHI JAIN

 Activity/ Turnover/ Efficiency/
Performance Ratios
 It measures the efficiency of the firm in
using its assets.
 Essentially evaluate operational efficiency
by measuring the rate of utilization of
various assets.
 These ratios are employed to evaluate the
efficiency with which the firm manages
and utilizes its assets. They are known as
Asset management ratios.
 They indicate the frequency of sales with
respect to its assets.
 These assets may be capital assets or
working capital or average inventory.
 Capital Turnover Ratio/ Net Asset
Turnover Ratio

 This ratio indicates the firm’s ability to generate sales/ cost of goods sold
per rupee of long-term investment.
 It is also called the investment turnover ratio.
 Capital Turnover ratio- Sales/ cost of goods sold
Net Assets (Capital Employed)
 Capital turnover ratios are of two types- Fixed assets turnover Ratio
 Working Capital Turnover Ratio
Capital Turnover Ratio/ Net Asset
Turnover Ratio
 Inventory/Stock Turnover Ratio

 This ratio establishes the relationship between

the cost of goods sold during the year and the
average inventory held during the year.
 It indicates how fast inventory is used or sold.
 Average inventory refers to the arithmetic
average of opening and closing stock.
 Cost of goods sold means sales less gross
profit.
 High ratio is good from the viewpoint of
liquidity.
 Receivables (Debtors) Turnover Ratio

 It expresses the relationship between credit

sales and debtors.
 Average accounts receivables= ( Opening
Debtors and Bills Receivables + Closing
Debtors and Bills Receivables)/2
 This ratio indicates the number of times the
receivables are turned over and converted
into cash in an accounting period.
 Higher turnover means speedy collection
from debtors.
 Payables Turnover Ratio

 Creditors turnover ratio indicates the

pattern of payment of accounts payable.
 It expresses the relation between credit
purchases and accounts payable.
 Average account payable= (Opening
Creditors and Bills Payable + Closing
Creditors and Bills Payable)/2
 It reveals the average payment period.
 Knowledge Shala By Nidhi Jain

 Thank You
 Please subscribe to the YouTube channel Knowledge Shala by
Nidhi Jain
 Also join the telegram channel Knowledge Shala by Nidhi Jain.

KNOWLEDGE SHALA BY NIDHI JAIN