Module 7 : Interpretation and Analysis of Accounts
Lecture 2 : Ratio Analysis
 
  1. Activity Ratios:
    Activity ratios are also called as Turnover ratios or Performance ratios. These ratios are used to evaluate efficiency with which the company manages and utilises its assets.
    These ratios are usually calculated with reference to sale/cost of goods sold and are expressed in terms of rate or times. Some of the important activity ratios are as follows:

    a. Capital Turnover Ratio =
                 Sales          
    		 
    Capital Employed
       
     

    This ratio indicates the firm’s ability of generating sales per rupee of long term investments.
     
    b. Fixed  Asset Turnover Ratio =
             Sales         
    		 
    Capital Asset
       
     

    This ratio indicates the firm’s ability to efficient utilisation of fixed asset in generating sales.