alleryStart learning →What do activity ratios reflect?
AThe speed with which resources become cash or sales
BThe share of the profits paid out as dividends
CThe proportion of assets funded by borrowing
DThe cost of preparing the annual financial report
Answer & Solution
Correct answer: A. The speed with which resources become cash or sales
1. Activity ratios measure how well a firm uses its assets.
2. They reflect the speed with which resources are converted to cash or sales.
3. Inventory turnover is the activity ratio used most often.
4. The share of profits paid out and the proportion funded by borrowing belong to dividend policy and to debt ratios instead.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
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