activity ratios

Activity ratios are used to measure how efficiently a company utilizes its assets. The ratios provide an idea of the overall operational performance of a firm. The activity ratios are “turnover” ratios that relate an income statement line item to a balance sheet line item. The income statement measures performance over a specified period, whereas the balance sheet presents data as of one point in time. To make the items comparable for use in activity ratios, an average figure is calculated for the balance sheet data using the beginning and ending reported numbers for the period (quarter or year). Asset turnover, inventory turnover, payables turnover and receivables turnover are activity ratios.