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activity ratio

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Financial Dictionary

Activity Ratio

Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets into cash or sales.

Investopedia Commentary

Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues.

Such ratios are frequently used when performing fundamental analysis on different companies. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios.

Related Links

Introduction to Fundamental Analysis
Ratio Analysis Tutorial
Advanced Financial Statement Analysis

See also: Accounting, Asset, Asset Turnover, Balance Sheet, Fundamental Analysis, Inventory, Inventory Turnover, Revenue

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Financial Dictionary

activity ratio

An indicator of how rapidly a firm converts various accounts into cash or sales. In general, the sooner management can convert assets into sales or cash, the more effectively the firm is being run. See also fixed asset turnover, inventory turnover, total asset turnover.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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