Activity ratios, also called efficiency ratios or turnover ratios, are a group of financial metrics that measure how effectively a company utilises its assets to generate revenue — assessing the operational efficiency of asset management across different balance sheet categories. The primary activity ratios include: Asset Turnover Ratio (Revenue ÷ Total Assets — measures revenue generated per rupee of total assets), Inventory Turnover Ratio (Cost of Goods Sold ÷ Average Inventory — measures how many times inventory is converted to sales per year), Receivables Turnover Ratio (Revenue ÷ Average Trade Receivables — measures how quickly credit sales are collected), Payables Turnover Ratio (Purchases ÷ Average Trade Payables — measures how quickly a company pays its suppliers), and Fixed Asset Turnover (Revenue ÷ Net Fixed Assets — measures revenue generated per rupee of plant and equipment). For Indian equity investors, activity ratios are critical for identifying operational efficiency trends — a declining inventory turnover in a consumer goods company may signal slowing demand or poor supply chain management, while improving receivables turnover in an NBFC suggests better collection efficiency. Activity ratio trends over multiple quarters provide early signals of operational deterioration or improvement before they fully manifest in the P&L statement.
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