A financial ratio that measures the speed with which various asset accounts are (or can be) converted into sales (accrual income) or cash. Activity ratios are typically used to analyze how effectively and aggressively a firm uses its assets. For example, if a firm keeps an inventory of only 10 units and sells 100 units during the financial year, inventory must entirely turn over and be replaced 10 times. In this case, the activity of inventory is said to be high and as a result this reduces storage costs but at the expense of giving customers limited or no selection.
Among the key activity ratios (turnover ratios) are:
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