Activity Ratios

Activity ratios indicate how effectively a firm is using its resources. By comparing revenues with the resources used to generate them, it is possible to establish an efficiency  of operation. The asset turnover ratio indicates how efficiently management is employing total assets. Asset turnover is calculated by dividing sales by total assets.

Activity ratios are the measures of how efficiently a firm utilizes its assets.

Activity ratio measure (e.g., accounts receivable turnover) of how efficiently assets are being used to generate revenues.

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