1. Introduction

The activity ratios indicate how efficiently a business manages its assets. The assets that are typically considered by these ratios are the firm's inventory, accounts receivable, accounts payable, and total assets. Activity ratios are sometimes also called operating ratios or management ratios.

There are two common ways of expressing activity ratios:

  • Turnover frequency: How many times a company converts the assets into cash (or sales) during a specific period. 
  • Turnover time: How many days it takes, on average, for the firm to convert the assets into cash (or sales).


The following sections take a closer look at the most important activity ratios:

  • Accounts receivable: Receivables Turnover and Days Sales Outstanding (DSO)
  • Accounts payable: Payables Turnover and Days Payables Outstanding (DPO)
  • Inventory: Inventory Turnover and Days Inventory Outstanding (DIO)
  • Assets: Sales-to-Assets ratio.


We conclude with a brief discussion of the "Cash Conversion Cycle," which is based on the three ratios DIO, DSO, and DPO.