Financial Ratios Series – Activity Ratios Part 1

“If you want to achieve excellence, you can get there today. As of this second, quit doing less-than-excellent work.” Thomas J Watson

Activity ratios measure  a firm’s ability to manage its resources efficiently. More specifically manage accounts receivable, assets, inventory, and accounts payable. For these type of ratios, we will use accounts from the Profit & Loss Statement and Balance Sheet.

The following are the ratios that you need to memorize and understand how to calculate them to succeed in your exam. Don’t feel overwhelmed by looking at this list. Most of these ratios are easy to calculate with some practice.

  1. Accounts Receivable Turnover
  2. A/R Days’ Sales Outstanding
  3. Inventory Turnover
  4. Days’ Sales in Inventory
  5. Accounts Payable Turnover
  6. Days’ Purchases in Accounts Payable
  7. Total Asset Turnover
  8. Fixed Asset Turnover

Now that we have all the ratios necessary to measure a firm’s ability to manage its resources, let’s look at each one closely in the next post.

I want to thank you for being an avid reader of this site. You are the reason I’m doing all of this. If you need help clarifying any article posted here, don’t hesitate to contact me. I’m ready to help you succeed in your exam preparations so that you will pass on your first try.

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Until next time,
Nathan

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