Activity Ratios:

Activity Ratios:

Activity ratios measure the speed with which various accounts/ assets are converted into sales or cash. They are concerned with measuring the efficiency in asset management.

The efficiency with which assets are used would be reflected in the speed and rapidity with which assets are converted into sales. The greater is the rate of turnover or conversion, the more efficient is the utilization of assets, other things being equal. Turnover is the primary mode for measuring the extent of efficient employment of assets by relating the assets to sales. According to assets, the activity ratio changes. The various types of ratios are as follows.

(1) Inventory Turnover Ratio.

(2) Receivables Turnover Ratio.

(3) Asset Turnover Ratio.