What is Activity ratio

Funds are invested in several assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets the larger is the amount of sales and profit. Activity ratios measure the efficiency or effectiveness with which a firm manages its resources or assets these ratio are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. It includes the following ratios.

1) Capital turnover ratio

2) Fixed assets turnover ratio

3) Working capital turnover ratio

4) Stock turnover ratio

5) Debtors turnover ratio (or receivables ratio)

6) Creditors turnover ratio(or payables turnover ratio)