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Efficiency/Activity Ratios
June 07 , 2012

Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called turnover ratios because they indicate the speed with which assets are being converted or turned over into sales. Activity ratios thus involve relationship between sales and assets. It includes ratios like inventory turnover ratio, debtors turnover ratio, average collection period, asset turnover ratio, and stock turnover ratio.

Inventory Turnover Ratio =  Sales / Inventory

Debtors Turnover Ratio =  Total Sales / Debtors

Average Collection Period =  Accounts Receivable / (Annual Credit Sales / 365 days)

Assest Turnover Ratio =  Net Sales / Total Assets

Stock Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory

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