Activity Ratios are used to monitor the abiltity of an enterprise to use its property (assets) - i.e. how the business uses individual business parts, whether it has relatively large unused capacities, whether it has sufficiently productive assets. The ratios are combined ratios that measure balance sheet items (assets) and profit and loss account (sales) items.
Any acceleration in the asset turnover is a positive trend because it means higher sales for the enterprise. Excessive acceleration of the turnover may, however, jeopardize the consistency of production and sales.
The ratios measure the capital bound in individual forms of property through two types of relationships:
how many times the assets turn over during a given period: Turnover speed = Sales (Costs) for a given period / Total Assets
how long the assets are bound in their given form: Turnover time = Total assets / Daily sales (costs)
In practice, the following ratios are most often used:
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