posted on 06-06-2019

Activity Ratio

Updated October 1, 2019

What is the Activity Ratio?

An activity ratio is a metric which determines the ability of a company to convert its balance sheet accounts into revenue.

How Does the Activity Ratio Work?

Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts. Examples of such ratios include the inventory turnover ratio and the accounts receivable turnover ratio.

Why Does the Activity Ratio Matter?

Activity ratios are critical in evaluating a company's fundamentals because, in addition to expressing how well a company generates revenue, activity ratios also indicate how well the company is being managed.


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Related Definitions

Balance Sheet
A balance sheet (also called a statement of financial position) is a statement that provides a snapshot of a company’s financial situation at a given date. It... See More
Revenue
Revenue, also called sales (or turnover, in the UK), refers to the value of the products and services a company sells. Net revenue usually refers to a... See More
Cash
Cash is an asset that is in currency form. See More
Sale
A sale is the transfer of title to a piece of property or performance of a service in return for compensation. In the retail world, a sale means a temporary... See More
Asset
An asset is an economic resource that can be owned by an individual, company, or country. Assets are expected to provide future economic benefits like:... See More
Liability
In finance and investing, a liability is a claim on a company's assets. See More
Capital
Capital is anything a business uses to generate income. In simple terms, capital is the potential for any item to create wealth. See More
Inventory Turnover
The inventory turnover ratio measures the rate at which a company purchases and resells products to customers. There are two formulas for inventory turnover... See More

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