activity ratio

Commonly Used Activity Ratios:

1. Inventory Turnover = Cost of Sales (COGS) / Average Inventory

   • Measures how efficiently inventory is managed.

2. Days of Inventory on Hand (DOH) = Number of Days in Period / Inventory Turnover

   • Indicates how many days inventory is held before being sold.

3. Receivables Turnover = Revenue / Average Receivables

   • Shows how efficiently receivables are collected.

4. Days of Sales Outstanding (DSO) = Number of Days in Period / Receivables Turnover

   • Measures the average number of days to collect receivables.

5. Payables Turnover = Cost of Sales (COGS) / Average Trade Payables

   • Evaluates how efficiently a company pays its suppliers.

6. Number of Days of Payables = Number of Days in Period / Payables Turnover

   • Shows how long a company takes to pay its suppliers.

7. Working Capital Turnover = Revenue / Average Working Capital

   • Measures efficiency in using working capital.

8. Fixed Asset Turnover = Revenue / Average Net Fixed Assets

   • Indicates how well fixed assets generate revenue.

9. Total Asset Turnover = Revenue / Average Total Assets

   • Measures overall efficiency in using total assets to generate revenue.

Key Takeaways:

• A higher turnover ratio suggests better efficiency.

• A lower turnover ratio may indicate inefficiency or excessive investment in assets.

• Comparing these ratios over time or with industry benchmarks helps assess financial health.

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