Question

_______ ratios indicate the speed at which activities of the business are being performed.

• A. Liquidity
• B. Solvency
• C. Profitability
• D. Activity

Hint:

Think of “Activity = Action = Speed”. Activity ratios are also called turnover ratios.

Answer 1

The Correct Option is D

Activity Ratios measure how efficiently a firm is utilizing its assets.
They show how quickly a company can convert inventory into sales, collect receivables, or use assets to generate revenue.
Examples include Inventory Turnover Ratio, Debtors Turnover Ratio, and Working Capital Turnover Ratio.
Liquidity Ratios (e.g., Current Ratio) measure short-term solvency.
Solvency Ratios (e.g., Debt-Equity Ratio) measure long-term debt-paying ability.
Profitability Ratios (e.g., Net Profit Ratio) measure profit performance.
Hence, Activity Ratios are related to speed of business operations.