Republic of the Philippines

Department of Education
National Capital Region
Schools Division Office – Muntinlupa City
MUNTINLUPA BUSINESS HIGH SCHOOL
Espeleta St., Buli, Muntinlupa City
SPECIAL PROGRAM IN TECHNICAL VOCATIONAL EDUCATION (SPTVE)
BUSINESS MATH 9
QUARTER 4 – WEEK 4

I. Topic: Activity Ratio

II. Objectives:
1. identify different indicators of business activity.
2. perform the calculation of activity ratio using indicators of efficiency; and
3. value the importance of activity ratio in analyzing financial statements.

III. Brief Introduction of the Lesson

Another general group of ratios is Activity Ratios.

Activity Ratio can show how quickly the company is collecting money for its credit sales
or how many times inventory turns over in a given period. This information can help
management decide whether the company's credit terms are appropriate and whether its
purchasing efforts are handled efficiently. Indicators of efficiency include:

1. Inventory Turnover – is a ratio showing how many times a company has sold and
replaced inventory during a given period. Calculating inventory turnover can help
businesses make better decisions on pricing, manufacturing, marketing, and
purchasing new inventory.
𝑐𝑜𝑠𝑡 𝑜𝑓 𝑚𝑒𝑟𝑐ℎ𝑎𝑛𝑑𝑖𝑠𝑒 𝑠𝑜𝑙𝑑
To calculate inventory turnover:
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝐸𝑛𝑑𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

To calculate average inventory: 2

2. Accounts Receivable Turnover – is the number of times per year a business collects
its average accounts receivable. The ratio is used to evaluate the ability of a company
to efficiently issue a credit to its customers and collect funds from them promptly.
𝑁𝑒𝑡 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
To calculate accounts receivable turnover: 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒+𝐸𝑛𝑑𝑖𝑛𝑔𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

To calculate average accounts receivable: 2

3. Asset Turnover Ratio – can be used as an indicator of how effectively a company

uses its assets to generate revenue. Long-term investments are not usually included
in the calculation because they are not productivity assets used to generate sales to
customers.
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑜𝑟 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
To calculate asset turnover ratio: 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 + 𝐸𝑛𝑑𝑖𝑛𝑔 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

To calculate average total assets: 2

MUNTINLUPA BUSINESS HIGH SCHOOL

Address: Espeleta St., Buli, Muntinlupa City
Telephone Number: 8-850-9479 / 8-772-2949
Email Address: mbhsmun@gmail.com
 Republic of the Philippines
Department of Education
National Capital Region
Schools Division Office – Muntinlupa City
MUNTINLUPA BUSINESS HIGH SCHOOL
Espeleta St., Buli, Muntinlupa City
IV. Activities:
Activity 1
Directions: The following ratio has been calculated for Cha Eun Inc. from the company’s
financial statements for the years ending December 31, 2019, and December 31, 2018.
For each ratio indicate whether the 2019 ratio is a FAVORABLE change or an
UNFAVORABLE change compared with 2018, write your answer on a separate sheet of
paper.

2019 2018

____________1. Receivable turnover 7.40 8.40

____________2. Asset turnover 2.75 3.20
____________3. Debt to asset 0.70 0.85
____________4. Current asset 1.60 1.65
____________5. Inventory turnover 7.90 7.20

Activity 2
Directions: Below are the comparative financial statements of Alyssa Soberano’s Design.
Compute for the activity ratios.

On a separate sheet, compute for the following and show your solution:
A. Inventory Turnover
B. Accounts Receivable Turnover
C. Asset Turnover Ratio

Activity 3
Directions: Arrange the letters to form the correct word/s that is being described and
write your answer on a separate sheet of paper.

VTOIRNYEN OTNVEURR
1. It measures the activity of a firm’s inventory.

2. It measures the value of a company's sales TSASE NTOURVRE ITORA

or revenues generated relative to the value
of its assets.

MUNTINLUPA BUSINESS HIGH SCHOOL

Address: Espeleta St., Buli, Muntinlupa City
Telephone Number: 8-850-9479 / 8-772-2949
Email Address: mbhsmun@gmail.com
 Republic of the Philippines
Department of Education
National Capital Region
Schools Division Office – Muntinlupa City
MUNTINLUPA BUSINESS HIGH SCHOOL
Espeleta St., Buli, Muntinlupa City
3. It refers to a method of analyzing a AORTI SANLASIY
company's liquidity, operational efficiency,
and profitability by comparing line items
on its financial statements.
4. It shows how quickly the company is ITCATIYV IARTO
collecting money for its credit sales or how
many times inventory turns over in a given
period.
5. It is the total revenue generated by a TNE SEALS
company, excluding any sales returns,
allowances, and discounts.
6. It is the value of all sales of goods and EUREEVN
services recognized by a company in a
period.
7. It is a resource owned or controlled by an SESAT
individual, corporation, or government with
the expectation that it will generate a
positive economic benefit.
8. It is any money your customers owe you for TCACUNO CLEEARBIVE
goods or services they purchased from you
in the past.
9. It is used by accountants and financial TORAI
professionals to communicate and
investigate problems or successes within a
designated period.
RSOGS FTPIOR
10. It is net sales minus the cost of goods sold.

V. Assessment:
Directions: Write the letter of the correct answer on a separate sheet of paper.

_______1. This refers to types of ratios that the number of times per year a business
collects its average accounts receivable.
A. liquidity ratio
B. inventory turnover
C. asset turnover ratio
D. accounts receivable turnover

_______2. Which of the following can be used as an indicator of how effectively a

company uses its assets to generate revenue?
A. activity ratio
B. inventory turnover
C. asset turnover ratio
D. accounts receivable turnover

MUNTINLUPA BUSINESS HIGH SCHOOL

Address: Espeleta St., Buli, Muntinlupa City
Telephone Number: 8-850-9479 / 8-772-2949
Email Address: mbhsmun@gmail.com
 Republic of the Philippines
Department of Education
National Capital Region
Schools Division Office – Muntinlupa City
MUNTINLUPA BUSINESS HIGH SCHOOL
Espeleta St., Buli, Muntinlupa City
_______3. Which of the following ratio shows how quickly the company is collecting
money for its credit sales or how many times inventory turns over in a given
period.
A. activity ratio
B. liquidity ratio
C. leverage ratio
D. profitability ratio

_______4. This refers to a ratio showing how many times a company has sold and
replaced inventory during a given period.
A. leverage ratio
B. inventory turnover
C. asset turnover ratio
D. accounts receivable turnover

_______5. Gross profit is equal to ________.

A. net sales – gross profit
B. net sales + cost of goods sold
C. nets sales – the cost of goods sold
D. cost of goods sold + gross profit

VI. Reflection:

1. Which among the indicators of business activity efficiency useful in making

financial decisions? Explain your answer.
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
___________________________________________________________________.

References:
1. Lumen, Introduction to Operating Efficiency Measures.
https://courses.lumenlearning.com/wm-financialaccounting/chapter/introduction-to-operating-efficiency-measures/ Date Retrieved: May 4, 2021.
2. Quizizz, Activity Ratio August 2020
https://quizizz.com/admin/quiz/5f27ed1263f000001ba5f353/activity-ratio Date Retrieved: May 4, 2021
3. Accounting Tools, 2021
https://www.accountingtools.com/articles/what-is-gross-profit.html Date Retrieved: May 5, 2021

Writers: Antonio L. Bandilla Jr. & Alyssa Camille V. Laureaga

Validator/s: Dr. Leonaida L. Gutierrez

MUNTINLUPA BUSINESS HIGH SCHOOL

Address: Espeleta St., Buli, Muntinlupa City
Telephone Number: 8-850-9479 / 8-772-2949
Email Address: mbhsmun@gmail.com