Definition Activity Ratio
Activity Ratio is a ratio used to measure the effectiveness of a company in using its assets. Or it can also be said that this ratio is used to measure the level of efficiency in the utilization of corporate resources. Efficiency is carried out for example in the field of sales, inventory, receivables collection and efficiency in other fields.
Activity ratios are also used to assess a company's ability to carry out daily activities. From the results of measurements with activity ratios it will be seen whether the company is more efficient and effective in managing its assets or maybe just the opposite.
From the results of these measurements, various things related to the company's activities will be known so that management can measure their performance so far. The results obtained for example can be seen how long the collection of a receivable in a certain period. Then these results are compared with a predetermined target or compared with the results of measurements of several previous periods.
In addition, this ratio is also used to measure the average days of inventory stored in warehouses, working capital turnover, fixed asset turnover in one period, use of all assets to sales ratios and other ratios.
Thus, from the results of these measurements it is clear that the condition of the company this period is able or not to achieve the targets that have been determined. If unable to reach the target, the management must be able to find the reasons for not achieving the predetermined target. Then, finding the improvement effort needed. However, if it is able to achieve the specified target, it should be able to be maintained or improved for the next period.
The use of activity ratios is to compare the level of sales with investments in assets for one period. This means that there is expected to be the desired balance between sales and assets such as stocks, receivables and other fixed assets. The ability of management to use and optimize assets owned is the main purpose of the activity ratio
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