Activity Ratios

Question 1

AR turnover

Answer 1

= net credit sales / average net receivables

Question 2

AR turnover in days

Answer 2

= average net receivables / (net credit sales / 365)

= 365 / AR turnover

Question 3

Inventory turnover

Answer 3

COGS / average inventory

Question 4

Inventory turnover in days

Answer 4

= average inventory / (COGS / 365)

Question 5

Operating cycle

Answer 5

= AR turnover in days + inventory turnover in days

Indicates the number of days between acquisition of inventory and realization of cash from selling the inventory.

Question 6

Working capital turnover

Answer 6

= sales / average working capital

Indicates how effectively working capital is used.

Question 7

total asset turnover

Answer 7

= net sales / average total assets

Indicates how effective the company is making use of assets. A high ratio indicates effective asset use to generate sales.

Question 8

AP turnover

Answer 8

= COGS / average AP

Question 9

Days in AP

Answer 9

= average AP / (COGS /365)