Activity ratios provide them with the information they seek.
What Is an Activity Ratio?
A financial indicator called an activity ratio shows how effectively a company is using the assets on its balance sheet to produce revenue and cash.
What is a high activity ratio?
A company that has a high ratio either started out with little assets or is using every one of them very well. A low ratio indicates that capital is being tied up in assets too much and that assets are not being used properly to produce revenue.
Why is activity ratio important?
The assets' rate of conversion into sales is shown by the activity ratios. Activity ratios are useful tools for assessing a company's operational effectiveness since they demonstrate not only how well it generates revenue but also how well it manages the elements of its balance sheet.
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