Activity (Turnover) Ratios

Inventory Turnover Ratio = Cost of Revenue from Operations ÷ Average Inventory

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

Trade Receivables Turnover Ratio = Net Credit Revenue from Operations ÷ Average Trade Receivables, with Average Collection Period = 12 months (or 365 days) ÷ Trade Receivables Turnover Ratio

Shows how many times receivables are collected during the year, and how long, on average, it takes to collect from credit customers.

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

Shows how many times payables are paid off during the year, and how long, on average, the firm takes to pay its credit suppliers.

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

Shows how efficiently working capital is being used to generate sales.