Activity Ratios

Activity ratios measure how well a firm is using its resources. Four activity ratios are analyzed: (1) inventory turnover, (2) average collection period, (3) fixed-asset turnover, and (4) total asset turnover. Inventory turnover (sales/inventory) measures how well a firm is turning over its inventory. The average collection period (receivables/sales per day) measures the accounts-receivable turnover. The fixed-asset turnover (sales to net fixed assets) measures the turnover of plant and equipment a measure of capacity utilization. Total-asset turnover (sales/total assets) measures how efficiently total assets have been utilized.