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Activity Ratios

Activity ratios

Any form of financial indicator that aids investors and research analysts in determining how effectively a firm uses its assets to create revenues and cash is referred to as an activity ratio.

Activity ratios can be used to compare two companies operating in the same industry or to track the financial health of a single organization over time.

Activity ratios can be further broken down into measurements of return on equity, total asset turnover, inventory turnover, and a variety of other indicators.

Activity ratios are particularly helpful when used to compare two businesses that are competitors in the same industry to see how one company compares to its rivals. Activity ratios, however, can also be used to monitor a company’s financial performance over a number of recording periods and identify changes over time. These figures can be plotted to show a potential performance picture for a corporation.

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