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Activity Ratios (Part 1) | Inventory Turnover | Average Age of Inventory | Average Collection Period - YouTube
Channel: Dr.Naveed Ahmed
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This is dr. naveed ahmed and today we will
discuss all types of activity ratios with
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examples, let鈥檚 start the session. Activity
ratios are intended to describe is how efficiently
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a firm uses its assets to generate sales.
In other words, these types of ratios measure
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the efficiency of a business in using and
managing its resources to generate maximum
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possible revenue.
The activity ratios actually show the connection
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between sales and a given asset. Assets such
as raw materials and machinery are introduced
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to generate sales and thereby produce profits.
Therefore, activity ratios not only show the
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speed at which the assets are converted into
sales but also shows that how well the company
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is managing the components in its balance
sheet.
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The following are the different Activity Ratios:
1. Inventory Turnover
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2. Average age of Inventory
3. Average Collection Period
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4. Average Payment Period
5. Total Assets Turnover
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