An Activity Ratio is a financial ratio that measures how efficiently a company uses its assets to generate sales.

Simple Meaning:

It shows how well a company is using its resources (like stock, debtors, or assets) to run the business.

Common Activity Ratios:

Inventory Turnover Ratio

Debtors (Receivables) Turnover Ratio

Total Asset Turnover Ratio

Working Capital Turnover Ratio

Example:

If a company sells goods quickly and collects money from customers fast, its activity ratios will be high.

Interpretation:

Higher ratio → Better efficiency

Lower ratio → Inefficient use of resources