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    Question

    Activity Ratios are meant to

    indicate:
    A Firm’s ability to meet its short-term obligations Correct Answer Incorrect Answer
    B Firm’s ability to meet its long-term obligations Correct Answer Incorrect Answer
    C How well a firm generates operating income and net income Correct Answer Incorrect Answer
    D How well a firm uses its assets Correct Answer Incorrect Answer

    Solution

    Activity ratios are  financial ratios used to gauge how efficient a company's operations are . It helps in analysing how efficiently the company utilises its resources to operate efficiently i.e. how efficiently it converts its assets into profits. They are also known as turnover ratios or efficiency ratios. Examples of activity ratios include accounts receivables turnover, inventory turnover, working capital turnover, total assets turnover, etc.

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