BY TENSING RODRIGUES
Please explain me the simplest way of doing Fundamental Analysis. - Rahul Naik
Let us continue with the Ratio Analysis.
Activity Ratios enable a more sophisticated analysis of a firm’s liquidity, evaluating the speed with which certain accounts are converted into sales or cash; also measures a firm’s efficiency.
Important Activity Ratios are:
Accounts receivable: Amount receivable by an enterprise on account of goods sold or services rendered or in respect of contractual obligations. (ICAI) Also termed as creditors, trade creditors or sundry creditors.
Accounts payable: Amount payable by an enterprise on account of goods purchased or services received or in respect of contractual obligations. (ICAI) Also termed as debtors, trade debtors or sundry debtors.
Fixed Assets: Assets held for the purpose of providing services and that are not held for resale in the normal course of operations of the firm. (ICAI)
Current Assets: Cash and other assets that are expected to be converted into cash or consumed in rendering of services in the normal course of operations of the firm. (ICAI)
Average collection period: The average time period for which receivables are outstanding. Equal to accounts receivable divided by average daily sales. Also called collection ratio.
Average payment period: The number of days a firm takes to pay off credit purchases.
Total / Fixed asset turnover: This is a measure of how well assets are being used to produce revenue.
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