What do the Activity ratios mean

Question 1

What is DIO and what does it mean

Answer 1

Days inventory outstanding

It represents the number of days between the purchase and sale of inventory (or goods).

• it is important to be close to industry standard

Question 2

What is DPO and what does it mean

Answer 2

Days payable outstanding

It represents the average number of days between the time the company purchases its inventory and the time it pays the suppliers.

Question 3

What is DSO and what does it mean

Answer 3

It represents the number of days between the sale of inventory (or goods) and the receipt of money due from the customer.

Question 4

What is account payable turnover

Answer 4

This ratio shows the frequency of payments for purchases during the fiscal year.

Question 5

What is inventory turnover

Answer 5

This is the frequency of inventory turnover during the fiscal year

Question 6

What is account receivable turnover

Answer 6

This ratio calculates the frequency of sales collection during a fiscal year.

Question 7

What does the asset turnover mean

Answer 7

This ratio indicates what each dollar invested in the Assets generates in dollars of Sales.