ACTIVITY RATIOS

Activity ratio is a financial ratio used by a company to measure the effectiveness of the
company's ability to use and sell or convert various operating assets on its balance sheet.

a) Inventory Turnover
The inventory turnover ratio compares the cost of goods sold to the average value of
inventory throughout an accounting period.

Formula: Cost of Goods Sold

Average Inventory

JAG BERHAD JAYCORP BERHAD

(RM) (RM)
100,104,055 241,635
53,917,086.5 43,443
=1.8566 times = 5.5621 times

Jaycorp's inventory turnover ratio, which is used to calculate cost of goods sold, is
higher than JAG's. According to the analysis, both companies compute ratios more
than 1.00. Inventory turnover is the ratio by which a company replaces inventory due
to sales over a given time period. The higher the inventory turnover, the better the
company replaces its goods. This is because they sell items quickly and their products
are in high demand.
b) Total Asset Turnover

The total asset turnover ratio compares a company's sales to its asset base.

Formula: Net Sales

Average Total Assets

JAG BERHAD JAYCORP BERHAD

(RM) (RM)
10,584,595 309,348
215,376,216 250,318
= 0.0491 = 1.2358

The asset turnover ratio is computed by dividing a company's sales or revenues by its
assets. A low asset turnover ratio typically indicates surplus industrial capacity,
ineffective inventory management, and inefficient tax collection systems. In 2020,
JAYCORP Berhad has a total asset turnover ratio greater than one, indicating that it
has higher net sales than average total assets. From this ratio, we can conclude that
companies with high turnover of total assets can operate with fewer assets and require
less borrowing and working capital than their less efficient competitors. As a result,
its stockholders must receive a higher return. JAG company, on the other hand, only
recorded less than 1.00, that is 0.0491.
 c) Account Receivable Turnover

The accounts receivable turnover ratio (AR turnover ratio) is a bookkeeping metric
used by entrepreneurs to compare total sales income to actual customer payments.

Formula: Net Sales

Average Trade Receivable

JAG BERHAD JAYCORP BERHAD

(RM) (RM)
10,584,595 309,348
8,133,744 38,229
= 1.3013 times = 8.0920 times

The accounts receivable turnover ratio shows how many times receivables were
collected over a given accounting period. It's an important metric for determining a
company's financial and operational success. To avoid cash flow problems, many
companies set aside money for accounts receivable. A high accounts receivable
turnover indicates a well-managed company, rigorous credit standards, or a cash-
based operating strategy. The account receivables turnover at Jaycorp Berhad
Company is 8.0920. JAG Berhad Company, on the other hand, has an account
receivables turnover of 1.3013. According to the data, Jaycorp Berhad Company has
higher collections than JAG Berhad Company.

ACTIVITY RATIOS COMPARISON

Activity ratios comparison is important for each company in evaluating a business’s
operating efficiency by analyzing fixed assets, inventories, and accounts receivables.
Using activity ratios, a company can compare activity ratios with competitors to
expresses a business’s financial health and also indicates the utilization of the balance
sheet components.

a) Inventory Turnover

JAG BERHAD JAYCORP BERHAD

(RM) (RM)
100,104,055 241,635
53,917,086.5 43,443
=1.8566 times = 5.5621times

The rate at which a company exchanges inventory for a period of sales is called
inventory turnover. Calculating inventory turnover aids companies in making better
pricing, manufacturing, marketing, and purchasing decisions. A well-managed
inventory level implies that the company's sales are on track and that costs are in
check. The inventory turnover ratio is a measure of a company's ability to generate
income from its inventory.

In this study, we shall compare JAG Berhad's activity ratio to that of JAYCORP
Berhad. The inventory turnover ratio can be used to calculate a company's cost of
goods sold and average inventory. According to the analysis, Jaycorp Berhad's
inventory turnover ratio in 2020 is 5.5621 times, whereas JAG Berhad's inventory
turnover ratio is 1.8566 times. This demonstrates that JAG Berhad can buy and sell
goods 5.5621 times per year, while JAYCORP Berhad can buy and sell inventory
1.8566 times per year. If the inventory turnover ratio is high, inventory turnover is
swift, indicating that the company can manage its inventory well. As a result,
JAYCORP Berhad is more efficient in inventory management than JAG Berhad since
the company's inventory turnover ratio is higher. The higher the inventory turnover,
the better, because it implies that the company is selling things quickly and that the
product is in high demand. As a result, achieving a high ratio is important, as higher
turnover rates minimise storage and other holding expenses.
 It has a low turnover rate, which indicates that JAG company has bad company sales,
carries too much inventory, or has poor inventory management. Unsold inventory
might be vulnerable to market price changes and obsolescence. Low inventory
turnover, on the other hand, indicates weaker sales and falling demand for a
company's items. Inventory can assist evaluate a company's liquidity depending on
the industry in which it operates. Inventory, for example, is one of the most
significant assets recorded by retailers. If a retailer reports a low inventory turnover
ratio, the goods may be outmoded, resulting in missed sales and higher holding
expenses.

b) Total Asset Turnover

JAG BERHAD JAYCORP BERHAD

(RM) (RM)
10,584,595 309,348
215,376,216 250,318
= 0.0491 = 1.2358

According to the 2020 Annual Report, JAG Berhad's total asset turnover ratio is
0.0491. This means that for every RM1 of average total assets used by the company, it
can create RM0.0491 in net sales. JAYCORP Berhad's total asset turnover ratio is
1.2358. This means that for every RM1 of average total assets used by the company, it
may earn RM1.2358 in net sales. If the total asset turnover ratio is higher, it indicates
that the company is more efficient in using assets to generate net sales, and if the total
asset turnover ratio is lower, it indicates that the company is not using total assets
efficiently to generate net sales. In conclusion, JAYCORP Berhad uses total assets
more efficiently than JAG Berhad since the company generates greater net sales.

c) Account Receivable Turnover

JAG BERHAD JAYCORP BERHAD

(RM) (RM)
 10,584,595 309,348
8,133,744 38,229
= 1.3013 times = 8.0920 times

According to the calculation, JAG Berhad's accounts receivable turnover ratio is

1.3013 times, while JAYCORP Berhad's accounts receivable turnover ratio is 8.0920
times. This determines that JAG Berhad can collect debt from customers fully 1.3013
times per year, while JAYCORP Berhad can collect debt from customers fully 8.0920
times per year. If the account receivable turnover ratio is high, the company is good at
handling accounts receivable. As a result, JAYCORP Berhad is better at managing
accounts receivable than JAG Berhad since the ratio of account receivable turnover is
higher.