EPANDING THE CONTENT OF AN OUTLINE using notes.pptx
Activity ratios
1. Prepared By
Mushtaq Ahmad Shah
Sr. Lecturer
Boys Hr Secondary Institute Sopore
www.clcsopore.blogspot.in
Accountancy Class 12th
Topic : Ratio Analysis
2. Activity /Performance / Turnover Ratios
to judge how well facilities at the disposal of the concern
are being used
measure the effectiveness with which a firm uses its
available resources..
Higher turnover ratio means better utilisation of assets
and signifies improved efficiency
indicate the speed with which the resources are being
turned or converted into Revenue
Meaning
3. Types of Activity Ratios
Inventory
Turnover
Ratio
Receivables
Turnover
Ratio
Payables
Turnover
Ratio
Fixed
Assets
Turnover
Ratio
Working
Capital
Turnover
Ratio
Capital
Turnover
Ratio
4. Inventory Turnover Ratio
Establishes a relationship between
the costs of goods sold and average
inventory
Also known as stock turnover ratio
To determine the efficiency with
which the inventory is utilized
Expressed as a Rate i.e. No. of
Times
Stock (Inventory) Turnover Ratio =
Cost of Revenue From Operations
Average Stock
Cost of Revenue From Operations(Cost of Goods Sold) = Net
Revenue From Operations (Sales) – Gross Profit,
Or = Opening Stock + Net Purchases + All Direct Expenses –
Closing Stock
Average Stock =
Opening stock + Closing Stock
2
5. Stock Velocity
Inventory Ratio expressed in terms of period
𝑆𝑡𝑜𝑐𝑘 𝑉𝑒𝑙𝑜𝑐𝑖𝑡𝑦 =
𝑵𝒐.𝒐𝒇 𝑴𝒐𝒏𝒕𝒉𝒔/𝑾𝒆𝒆𝒌𝒔/𝑫𝒂𝒚𝒔
𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐
𝑂𝑟 =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑺𝒕𝒐𝒄𝒌
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑪𝒐𝒔𝒕 𝒐𝒇 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒃𝒔
Average Cost of Revenue can be measured in Days/Months/Weeks
6. Receivables Turnover Ratio
Establishes a relationship between
Net credit Revenue From
Operations(Sales) and average
accounts receivables
accounts receivable includes trade
debtors and bills receivables
To determine the efficiency with
which the accounts receivable are
managed
Expressed as a Rate i.e. No. of Times
Receivables Turnover Ratio =
Net Credit Revenue From Operations
Average Receivables
Net Credit Revenue from Operations = Revenue from Operations
(Sales) – Cash Revenue from Operations – Returns Inwards
Average Receivables =
Opening Receivables+ Closing Receivables
2
Receivables = Debtors + Bills Receivables
7. From the following information, calculate stock turnover ratio :
Opening Stock Rs. 18,000 Wages Rs. 14,000. Closing Stock Rs. 22,000 Sales Rs.
80,000, Purchases Rs. 46,000 Carriage Inwards Rs. 4,000
From the following information, calculate stock turnover ratio.
Sales: Rs. 4,00,000, Average Stock : Rs. 55,000, Gross Loss Ratio :
10%
A trader carries an average stock of Rs. 40,000. His stock turnover
is 8 times. If he sells goods at profit of 20% on sales. Find out the
profit.
Calculate Stock Turnover Ratio:
Annual sales = Rs. 2,00,000, Gross Profit = 20% on cost of Goods Sold, Opening
stock = Rs. 38,500
Closing stock = Rs. 41,500
8. Calculate the Debtors Turnover Ratio from the following information:
Total Revenue = Rs. 4,00,000, Cash Revenue = 20% of total Revenue, Debtors on 1.1.2004 =
Rs. 40,000, Debtors on 31.12.2004 = Rs. 1,20,000.
Calculate the Receivables Turnover Ratio from the following information:
Total Revenue = Rs. 8,40,000, Credit Revenue = 75% of Net Revenue, Return Inwards =
40000 Receivables on 1.1.2004 = Rs. 80,000, Receivables on 31.12.2004 = Rs. 1,80,000
From the following particular calculate Receivables turnover ratio and average
collection period
Annual total sales 49,50,000
Cash sales (included in above) 6,25,000
Sales returns 75,000
Opening balance of receivables (net) 3,60,000
Closing balance of receivables (net) 4,00,000
Provision for bad and doubtful debts (opening) 40,000
Provision for bad and doubtful debts (closing) 50,000