Activity Ratios in QuickBooks 2012 - dummies

By Stephen L. Nelson

Activity ratios provide an indication of how efficiently a firm runs its operations. In QuickBooks 2012, you can use activity ratios to help manage your company’s assets. For example (all other factors being equal), a firm that keeps a very modest amount of inventory is in better shape than a firm that has to keep (store, manage, warehouse, insure, and so forth) a bunch of inventory. That makes sense, right?

Dell Computer, as you may know, keeps only a few days’ worth of inventory on hand. In other words, it sells out its current inventory holdings every few days. Other computer manufacturers — especially in the past — kept weeks’ and even months’ worth of inventory.

Comparing the two examples, which is more efficiently and more leanly managing its inventory? Which has the minimal investment tied up? Which isn’t suffering or paying the price of warehousing all that extra, quickly obsolete inventory? The answer is Dell, obviously. So, predictably, Dell’s activity ratios look really good compared with its competitors.

Activity ratios, in essence, measure how well a firm uses its assets. If a firm makes super-efficient use of its factory, for example, that efficiency shows up in its activity ratios. And if a firm runs lean and mean, that leanness and meanness shows up in its activity ratios.