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Activity Ratios in Retail Performance

Activity ratios measure how efficiently a company manages its receivables, inventory, and total assets. The receivables turnover ratio calculates how quickly a company collects money owed by customers, with a higher ratio indicating more efficient collections. The inventory turnover ratio measures how many times inventory is sold during a period, showing how efficiently inventory is used to generate sales. The total assets turnover ratio determines how productively a company uses all its assets to generate sales, with a lower ratio suggesting assets are being underutilized.

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27 views2 pages

Activity Ratios in Retail Performance

Activity ratios measure how efficiently a company manages its receivables, inventory, and total assets. The receivables turnover ratio calculates how quickly a company collects money owed by customers, with a higher ratio indicating more efficient collections. The inventory turnover ratio measures how many times inventory is sold during a period, showing how efficiently inventory is used to generate sales. The total assets turnover ratio determines how productively a company uses all its assets to generate sales, with a lower ratio suggesting assets are being underutilized.

Uploaded by

Naman Tandon
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Receivables Turnover

Ratio

sales/Accounts Receivable

Inventory Turnover

COGS/Inventory

Total Asset Turnover

Sales/Total Asset

1.0930
79
1.1034
01

65.41
784

1.1523
23
1.0527
01

85.38
71

67.35
971

1.1393
85
0.9514
78

ACTIVITY RATIOS:
Activity ratios are financial analysis tools used to gauge the ability of a business
to convert various asset, liability and capital accounts into cash or sales. Activity
ratios measure the amount of resources invested in a company's collection and
inventory management. Because businesses typically operate using materials,
inventory and debtors, activity ratios determine how well an organization
manages these areas. The faster a business is able to convert its assets into cash
or sales, the more efficient it runs. Activity ratios become more meaningful when
compared to industry-average activity ratios.
Receivables Turnover RatioThe accounts receivable turnover ratio determines an entity's ability to collect
money from its customers. Total credit sales are divided by the average accounts
receivable balance for a specific period. This activity ratio calculates
management's ability to receive cash.
For FY 2015 the Receivables Turnover Ratio is 85.3871. It shows more efficiency
in collecting credit sales for that year. In comparison FY 2016 has of 67.35971
which indicates poor credit and collection performance by the company.
Inventory Turnover RatioThe merchandise inventory turnover ratio measures how often the inventory
balance is sold during an accounting period. The cost of goods sold is divided by
the average inventory for a specific period.
For Tata Global Beverages, the Inventory turnover has almost been stable over
FY 2014 to FY 2016. On comparing, the year ending FY 2015 had been more
efficient in using inventory to generate sales.
Total Assets Turnover RatioThe total assets turnover ratio take a look at how efficiently an entity uses its
assets to make a sale. Total sales are divided by total assets to see how
proficient a business is at using its assets.
Since the ratio is smaller in FY 2016 as compared to the previous two years, it
shows that the company is holding higher levels of inventory instead of selling.

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