Accounting
  Actualities

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Activity Ratios:

Measures how effectively the company uses its assets


Accounts Receivable Turnover

Receivables turnover		 The accounts receivable turnover is an activity ratio which calculates the number of times a business collects its credit sales over the average accounts receivable, which is calculated by (beginning AR + ending AR) / 2. It measures the efficiency of a business at collecting its credit sales. A high value of accounts receivable if preferred, as a low figure indicates difficulty in collecting outstanding credit sales. However a very high level may indicate that looser credit may be able to generate more sales.

Number of Days' Sales in Average Receivables

Number of Days' Sales in Average Receivables		 Measures the average number of days required to collect receivables. (A year could be 300 or 360 or 365 or other number of days)

Inventory turnover

Inventory turnover		 Inventory Turnover is an activity ratio that measures the number of times the average inventory is sold over a period of time, also referred to as: Inventory turns, stockturn, stock turns, and stock turnover. A high number is indicative of efficient operations. A low turnover rate may indicate overstocking, obsolete product, or poor marketing efforts. It is sometimes calculated with sales (instead of COG) and/or inventory (instead of average inventory), but this produces a less accurate number.

Number of Days' Supply in Inventory

Number of Days' Supply in Inventory		 Measures the number of days in inventory is held before it is sold or used; the efficiency of general inventory management. (A year could be 300 or 360 or 365 or other number of days)

Days in Operating

Days in Operating		 Days in operating measures the average length of time to invest cash in inventory, convert the inventory to receivables, and collect the receivables, in short it measures the time to go from cash back to cash; also referred to as “Operating Number of Cycle”

Asset turnover

Asset turnover		 Asset Turnover is an activity that measures a business’s efficiency at using the assets in generating revenue, the higher the number the better. Indirectly, a higher asset turnover tends to indicate lower profit margins as the businesses has adopted a low-margin, high-volume approach; whereas a lower asset turnover tend to indicate higher profit margins as the business has adopted a high-margin, low-volume approach.

Price To Book (P/B)

Price To Book		 Price-To-Book Ratio is used to compare a stock’s market price to its book value, also called Price-Equity Ratio and Market-To-Book Ratio. A higher number indicates greater expectation of management. A lower number may be sign of an undervalued company or a company in distress. The ratio should be compared to others in the same industry. The calculation can also be made ignoring the effect of intangible assets when not exploring a bankruptcy event.