Activity Ratios Definition
Activity ratios are used to measure the ability of a business to convert different balance sheet accounts such as stock, debtors, and creditors into cash or sales, and the managements ability to control the resources of the business.
Popular Activity Ratio List
A selection of popular activity ratios from the Double Entry Bookkeeping Ratios Guide.
Activity Ratios Analysis
Activity ratios should not be viewed in isolation but looked at over a period of time using trend analysis and in comparison to other businesses in your industry.
In addition, in order to give a full picture of what is happening, they should be viewed relative to other ratios calculated for the business such as liquidity ratios, efficiency ratios, leverage ratios, profitability ratios, and investor ratios.
Activity Ratios Formula
There are numerous examples of activity ratios, however, it is important to select the key ratios which relate to your business. The industry sector, size, and complexity of the business will determine the most appropriate ratios to use and many may not be relevant or worth calculating, particularly for a small business.
The following list of activity ratios examples are useful to start with.
|Activity Ratios||Activity Ratios Formulas|
|Debtor Days||Debtors / Average Daily Sales = Debtors / (Sales / 365)|
|Creditor Days||Creditors / Average Daily Purchases = Creditors / (Purchases / 365)|
|Stock Turnover||Stock / Average Daily COGS = Stock / (COGS/ 365)|
* COGS = Cost of Goods Sold