Activity Ratios
These ratios help in understanding how well the assets are used being utilized. Efficient usage of assets allows for lesser investment by lenders and owners and thus means less risk involved in the business.
1. Days receivables outstanding : This ratio tells about the days required to make collection on the sales. If more days are required to gather sales capital then more working capital is required to run the business.
Days Receivables Outstanding = Account receivables / Average sales in a day
2. Inventory Turnover : This ratio usually tells how quickly the inventory is moving out to earn money for the company
ITR = Cost of goods sold / Average Inventory
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