Activity or Turnover Ratios - Class 12, Accountancy Video Lecture

activity ratios in this module you will
learn about activity ratios miss ontong
is a diamond exporter she purchase
diamonds worth only ten lakh rupees from
mr. Rana
as she doesn't want to overstock in
order to make her payments she maintains
a record of activity ratio which is her
guide to how she can quickly pay off her
debts from her available resources
activity ratios help a company to
measure its efficiency of using its
available resources activity ratios are
also called
turnover ratios as this measures how
quickly a company can convert certain of
its assets into cash activity ratios are
calculated on sales a cost of goods sold
activity ratios are expressed in times
than percentage the most common activity
ratios include capital turnover ratio
fixed assets turnover ratio stop
turnover ratio debtors turnover ratio
predator turnover ratio let's look at
each separately capital turnover ratio
when a businessman invests in a business
he expects best returns and maximum
revenue capital turnover ratio helps a
businessman to measure how effectively
his invested capital can produce
revenues for the business a higher ratio
indicates better utilization of invested
capital fixed assets turnover ratio a
company spends a large amount to
maintain sufficient and necessary fixed
assets usually these assets value add
2/3 of the company's total assets
inventory Oster turnover ratio store or
inventory is one of the most important
components of the working capital of a
business both over stalking and under
stalking may cause huge losses to a
company in order to calculate stop
turnover ratio divide a company's cost
of goods sold by its average stock a
high ratio means efficient use of stop
and vice versa in the absence of cost of
goods sold or if it cannot be a certain
then the amount of sales may be used
similarly if opening stock is not given
then closing stock is considered to be
average stock debtors turnover ratio
increasing competition and availability
of close substitutes in the market have
made it necessary for a businessman to
come up with fresh ideas to increase
their sales credit sale of goods is one
of such marketing strategy to increase
sales after a credit sale it is
important to recover the amount due from
debtors on time to make up the liquidity
of a business debtors turnover ratio
indicates the speed at which sundry
debtors can be converted into cash
debtors turnover ratio or receivable
turnover ratio is calculated by dividing
net credit sales by average debtors
a higher ratio signifies with collection
of debts whereas a low ratio suggests
low liquidity of a low ratio indicates
slow rate of repayment to predators
while a high ratio indicates quick
settlement of predators by a firm