Activity ratios

They measure how efficiently a firm is using its assets to generate revenue, or how much cash is being tied up in other assets including receivables and inventory.

Inventory Ratio

Measures the effectiveness of the inventory management practices of the firm. It refers to the number of times that inventory is used.

Inventory Turnover = Cost of Goods Sold / Inventory

Low inventory can indicate problems with selling company products.

Receivable Turnover

Measures the quality of receivables and how successful the firm is in collecting outstanding invoices.

Receivable Turnover = Sales / Accounts Receivable

The average collection period is an approximate number of days it takes for a business to receive payments owed. It can be calculated as 365 days / Receivable Turnover

Asset Turnover

Measures the overall effectiveness of the firm in utilising its assets to generate sales.

Total Asset Turnover = Sales / Total Assets