Activity (Turnover) Ratios

Stock (Inventory) Turnover Ratio = Cost of Revenue from Operations ÷ Average Inventory, where Average Inventory = (Opening Stock + Closing Stock) ÷ 2

Shows how many times inventory is sold and replaced during the year; a higher ratio generally indicates faster, more efficient inventory movement.

Debtor (Trade Receivables) Turnover Ratio = Net Credit Sales ÷ Average Trade Receivables; Average Collection Period = 12 months (or 365 days) ÷ Debtor Turnover Ratio

Shows how many times debtors are collected in the year, and how long, on average, credit customers take to pay.

Creditor (Trade Payables) Turnover Ratio = Net Credit Purchases ÷ Average Trade Payables; Average Payment Period = 12 months (or 365 days) ÷ Creditor Turnover Ratio

Shows how many times creditors are paid in the year, and how long the firm takes to pay its own credit suppliers.

Working Capital Turnover Ratio = Revenue from Operations ÷ Working Capital, where Working Capital = Current Assets − Current Liabilities

Shows how efficiently the firm's net current resources are used to generate sales.