Activity Ratios or Turnover Ratios – Definition, Explanation and Use:
The activity ratios or turnover ratios (which are sometimes referred to as efficiency ratios or utilization ratios) provide some indication of the extent to which the assets of the business have been efficiently managed. The activity level of a business may be determined through the sale volume generated by the business. All businesses use their assets in the pursuit of generating sales revenue. The turnover ratios are therefore used to analyze the efficiency of different assets in generating sales revenue.
Types of Turnover Ratios or Activity Ratios:
There are following types of turnover ratios:
- Inventory turnover ratio
- Trade receivable collection period
- Trade payable payment period
- Non current asset turnover