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The main purpose of activities ratios is --------
- a)To know how effectively the resources have been used
- b)To meet short term liabilities
- c)To know the profitability
- d)To know the solvency
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
The main purpose of activities ratios is --------a)To know how effecti...
Activity ratio is always known as performance or turnover ratio. The main purpose of this ratio is to know that how effectively the resources have been used.
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The main purpose of activities ratios is --------a)To know how effecti...
Introduction:
Activities ratios, also known as efficiency ratios or turnover ratios, are financial ratios that measure how effectively a company utilizes its resources to generate sales or income. These ratios provide insights into how efficiently a company is managing its assets, liabilities, and operations.
Explanation:
1. Purpose of activities ratios:
The main purpose of activities ratios is to determine how effectively a company has utilized its resources. These ratios help in evaluating the efficiency and effectiveness of different aspects of a company's operations.
2. Measure of resource utilization:
Activities ratios provide a measure of how efficiently a company has utilized its assets, such as inventory, accounts receivable, and fixed assets, to generate sales or revenue. It helps in assessing whether the company is utilizing its resources optimally or if there is room for improvement.
3. Evaluating operational efficiency:
Activities ratios also help in evaluating the operational efficiency of a company. By analyzing ratios such as inventory turnover ratio, accounts receivable turnover ratio, and fixed asset turnover ratio, one can determine how well a company is managing its inventory, collecting payments from customers, and utilizing its fixed assets.
4. Identifying areas of improvement:
These ratios help in identifying areas where a company can improve its efficiency. For example, a low inventory turnover ratio may indicate that a company is holding excess inventory, tying up its working capital. By addressing this issue, the company can improve its cash flow and overall efficiency.
5. Benchmarking:
Activities ratios also facilitate benchmarking against industry peers. By comparing a company's ratios with industry averages or competitors, one can determine how well the company is performing in terms of resource utilization and operational efficiency. This helps in identifying areas where the company may be lagging behind or excelling.
Conclusion:
In conclusion, the main purpose of activities ratios is to assess how effectively a company has utilized its resources. These ratios help in evaluating the efficiency and effectiveness of different aspects of a company's operations, identifying areas of improvement, and benchmarking against industry peers. By analyzing these ratios, companies can make informed decisions to enhance their resource utilization and operational efficiency.
Activities ratios, also known as efficiency ratios or turnover ratios, are financial ratios that measure how effectively a company utilizes its resources to generate sales or income. These ratios provide insights into how efficiently a company is managing its assets, liabilities, and operations.
Explanation:
1. Purpose of activities ratios:
The main purpose of activities ratios is to determine how effectively a company has utilized its resources. These ratios help in evaluating the efficiency and effectiveness of different aspects of a company's operations.
2. Measure of resource utilization:
Activities ratios provide a measure of how efficiently a company has utilized its assets, such as inventory, accounts receivable, and fixed assets, to generate sales or revenue. It helps in assessing whether the company is utilizing its resources optimally or if there is room for improvement.
3. Evaluating operational efficiency:
Activities ratios also help in evaluating the operational efficiency of a company. By analyzing ratios such as inventory turnover ratio, accounts receivable turnover ratio, and fixed asset turnover ratio, one can determine how well a company is managing its inventory, collecting payments from customers, and utilizing its fixed assets.
4. Identifying areas of improvement:
These ratios help in identifying areas where a company can improve its efficiency. For example, a low inventory turnover ratio may indicate that a company is holding excess inventory, tying up its working capital. By addressing this issue, the company can improve its cash flow and overall efficiency.
5. Benchmarking:
Activities ratios also facilitate benchmarking against industry peers. By comparing a company's ratios with industry averages or competitors, one can determine how well the company is performing in terms of resource utilization and operational efficiency. This helps in identifying areas where the company may be lagging behind or excelling.
Conclusion:
In conclusion, the main purpose of activities ratios is to assess how effectively a company has utilized its resources. These ratios help in evaluating the efficiency and effectiveness of different aspects of a company's operations, identifying areas of improvement, and benchmarking against industry peers. By analyzing these ratios, companies can make informed decisions to enhance their resource utilization and operational efficiency.
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The main purpose of activities ratios is --------a)To know how effecti...
Activity ratio are those ratios,the purpose for their vacations is to know that how the resources of the business are used. Since,the activity of business like purchase or manufacturing and sales involve the uses of the resources of the business.So,it's very important to know that whether they are effectively being utilised or not.
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The main purpose of activities ratios is --------a)To know how effectively the resources have been usedb)To meet short term liabilitiesc)To know the profitabilityd)To know the solvencyCorrect answer is option 'A'. Can you explain this answer? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about The main purpose of activities ratios is --------a)To know how effectively the resources have been usedb)To meet short term liabilitiesc)To know the profitabilityd)To know the solvencyCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The main purpose of activities ratios is --------a)To know how effectively the resources have been usedb)To meet short term liabilitiesc)To know the profitabilityd)To know the solvencyCorrect answer is option 'A'. Can you explain this answer?.
The main purpose of activities ratios is --------a)To know how effectively the resources have been usedb)To meet short term liabilitiesc)To know the profitabilityd)To know the solvencyCorrect answer is option 'A'. Can you explain this answer? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about The main purpose of activities ratios is --------a)To know how effectively the resources have been usedb)To meet short term liabilitiesc)To know the profitabilityd)To know the solvencyCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The main purpose of activities ratios is --------a)To know how effectively the resources have been usedb)To meet short term liabilitiesc)To know the profitabilityd)To know the solvencyCorrect answer is option 'A'. Can you explain this answer?.
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