Activity Ratios

Jun 012013
 

Activity Ratios Definition

Activity ratios are used to measure the ability of a business to convert different balance sheet accounts such as inventory, debtors, and creditors into cash or sales.

Activity ratios are a measure of 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

Jun 072014
 

The accounts receivable turnover measures the number of times accounts receivable is collected or converted into cash during an accounting period, and is an indication of the quality of the accounts receivables management system in the business.

The Excel receivables turnover ratio calculator, available for download below, is used to compute accounts receivable turnover by entering details relating to the net credit sales and the opening and closing accounts receivable balances.

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May 262014
 

The inventory turnover ratio measures the number of times the inventory of a business is converted into sales or used during an accounting period.

The Excel inventory turnover ratio calculator, available for download below, is used to compute inventory turnover by entering details relating to the cost of goods sold and the opening and closing inventory levels.

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Jun 262013
 

The Inventory Days ratio shows the average number of days sales a business is holding in its inventory. It is calculated by dividing inventory by average daily cost of goods sold. It is sometimes called the Stock Days ratio.

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