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Analysis2[1] - ACTIVITY RATIOS As the term itself speaks...

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ACTIVITY RATIOS As the term itself speaks, the various activities of a firm should aim at maximizing the overall objective of the company. So the firm has to ensure that all the activities should be efficiently managed, properly supported by the assets or resources . In other words, it can be said that there should be optimum and efficient utilization of the assets or all resources of the firm, leading to more profitable activities . These ratios are also called turnover ratio because they indicate the speed with which assets are converted or turned over into sales . The various ratios to be discussed under this head are follows : 1) Debtors Turnover Ratio 2) Creditors Turnover Ratio 3) Inventory Turnover Ratio 4) Working Capital Turnover Ratio 5) Fixed Assets Turnover Ratio 6) Proprietary Ratio
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1) Debtors Turnover Ratio : Net Credit Sales a) Debtor Turnover Ratio: --------------------------------- Average Debtors Net Credit Sales = Total Sales – Cash sales – Sales Return Average Debtors = Simple average of debtors at the beginning and at the end of the year. (Opening Debtors + Closing Debtors) = ---------------------------------------------------------- 2 No. of days in a year b) Average Collection Period : ----------------------------------- Debtor Turnover Ratio
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General Interpretation :
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