What do activity ratios measure?

Activity ratios specifically measure how efficiently a company utilizes its assets to generate sales or cash. These ratios provide insights into the operational effectiveness of a business in managing its resources. For instance, ratios such as inventory turnover, accounts receivable turnover, and asset turnover indicate how well the company converts its assets into revenues. When these ratios are high, it generally signifies that the company is effective in maximizing its asset usage to drive sales, which is a critical aspect of operational management.

Other options focus on different financial aspects. Some assess liquidity and solvency, which concern the ability of a firm to meet short-term and long-term obligations, rather than operational efficiency. Others may concentrate on profitability or market dynamics, but none of those directly address how well a company utilizes its assets in terms of generating revenue, which is the core purpose of activity ratios.