Page 420 - F2 - MA Integrated Workbook STUDENT 2018-19

Chapter 16

2.3 Measuring activity

Activity ratios look at how well a business manages to convert
statement of financial position items into cash. They are used to
investigate how efficiently current assets are managed.

 Asset turnover = Revenue ÷ capital employed

 Inventory days = inventory ÷ cost of sales × 365

 Receivable days = receivables ÷ credit sales × 365

 Payable days = payables ÷ credit purchased × 365

Test your understanding 3

The summarised financial statements for P Limited, a potential major supplier,
are shown below. Before a contract is signed, the financial performance of P
Limited is to be reviewed.

Summary Statement of Financial Position for P Limited at year end

20X3
£000

Non-current assets 1,600
Inventories 300

Trade receivables 200
Cash 50

Trade payables (280)
Long-term borrowings (900)
_____
Net assets 970
–––––

Share capital 600
Retained earnings 370
_____
970
–––––

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