Difference between liquidlty ratio and activity ration

Discuss on the basis of management perspective

Liquidity ratio is used to measure either company is capable to pay its debt obligation or not and Activity ratio is used to measure whether the company is doing good or not, or we can say that converting resources into cash or not.Liquidity ratio is one of the part of activity ratio.

Liquidity ratio studies the firms short term solvency and its ability to pay liability while activity ratio indicates how effectively and efficiently an account has turnover during a period.
Liquidity ratio provides a measure of liquidity of thr firm by establishing relationship between current assets and current iabilities while activity ratio are calculated with reference to sales or cost of goods sold.

liquidity ratio refers to either firm is able to meet its current financial obligation or not and activity ratio shows how efficently the accounts has turnover during the period.

Ratio analysis is used to evaluate various aspects of company's operating and financial performances.
Liquidity ratio measures the company's ability to satisfy its shortly maturing commitments.It is an indicator of whether company's current assets will be sufficient to meet the company's obligation when they become due. It gives insights about cash solvency. Liquidity ratios are also known as Balance Sheet Ratios.
Activity Ratios measures effectiveness of company using its resources. It is a measure of movement and shows how efficiently the assets of a firm are being utilized. Activity ratios are also known as Turnover Ratios.

The trend of these ratios over time is studied to check whether they are improving or deteriorating.

Ratio is very important for any firm.Ratio is classified into 4 types and used by the financial managers.The ratio are :-
liquidity ratio
leverage ratio
turnover ratio
profitability ratio
Liquidity ratio signifies the cash position of a particular company,it measures the short term financial position of a firm.
whereas,
Activity ratio or turnover ratio indicates how frequently account has turnover during a period and calculated for all the especific assets.It shows how efficiently the assets of a firm are being utilized.

In Accounting liquidity means the ability of a company to meet its financial obligations. Liquidity ratio is a computation which is used to measure company's ability to pay its short term debts. It can be calculated in 3 form
1. Current ratio
2. Cash ratio
3. acid ratio
where as, activity ratio indicates how much a company has invested in a particular type of assets, relative to the revenue the assets is producing. it includes
1. Average collection period
2. inventory turnover ratio

In Accountancy, Liquidity means short term solvency of the firm that how frequently the firm is generating cash and maintaining a relationship between current assets and current liabilities.

Activity ratio is also known as Turnover ratio, is used to evaluating the performance of the company and how effectively management utilizes there assets in generating sales.

Liquidity refers to firms ability to meet its current financial obligations. This ratio studies the firm's short term solvency and its ability to pay liabilities. the liquidity ratio provides a measure of liquidity of the firm by establishing relationship between current assets and current liabilities. It is also known as balance sheet ratio becausee information required for calculation of liquidity ratio is available in balance sheet only. It is calculated as Current Ratio and the formula for this is Current assets/current liabilities.
On the other hand, activity ratio is a measure of movement and indicates how frequently an account has turned over during a period. It shows how efficiently the assets of a firm are being utilized. These ratios are usually calculated with reference to sales or cost of goods sold. and are expressed in term of rate. The activity ratio is also known as efficiency ratio or turnover ratio. It is calculated for all the specific assets.

Liquidity ratio deals with current liabilities and short term solvency.It explains that how effectively a company can pay off its due liabilities and short term obligations.It is a relation between current assets and current liabilities.
Activity or turnover ratio tells us that how effectively a company utilize their resources to generate the revenue for the organisation.It tells us that how frequently an account has turned over during a period.

Liquidity Ratio tells us about the company's short term solvency position and its ability to pay off their liabilities when they become due where as Activity or turnover ratio indicated how frequently one account is being turned over i.e. company's ability to convert different accounts into cash within a year.

Liquidity Ratio deals with the short term solvency. It tells us how effectively company can pay their short term obligations.It is also known as balance sheet ratio.
Activity Ratio deals with the long term solvency .It tells us how effectively the assets of the company are utilized.It is also known as turnover ratio or efficiency ratio..

Liquidity ratio is the relationship between the current assets and the current liabilities. Liquidity refers to the firm’s ability to meet its current financial obligations when arises. Whereas Activity Ratio or the turnover ratio shows how efficiently the assets are being utilized with respect to the resources owned by the business.

A liquidity ratio is an indicator of whether a company's current assets will be sufficient to meet the company's obligations when they become due.

Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts. 


Liquidity ratios measure the short term financial position of the firm.

Activity ratios measure the efficiency and effectiveness of a firm in managing its resources and assets.

Ratios are vital tools of every financial analyst,without it financial analysis cannot be completed.
now,what is meant by liquidity?
its simply means the availability of cash,,thus Liquidity ratios are those ratios which explains about the cash position of a particular company,it helps us analyzing how much cash is available with the corporate and how much of it is not used or ideal.
Accounting ratios or Turnover ratios are the ratios which explains us about the ability of the company to convert it resources into sales.it tell us that how much time a company had taken to convert its resources in to sales or revenue.

Liquidity ratios measure the short term financial position of the firm. while the activity ratios measure the efficiency and effectiveness of a firm in managing its resources and assets.

Liquidity ratio is a indicator of whether a companies current assets will be sufficient to meet companies obligations when they become due.It is used to measure short term financial positon of firm. While activity ratios indicates the efficiency with which a business uses its assets and measures how effectively a company is able to generate revenue in the form of cash.

Liquidity Ratio refers to firm's ability to meet its current financial obligations when they arise.It also studies the firm short-term solvency and its ability to pay liabilities.The liquidity Ratio provides a measure of liquidity of the firm by establishing relationship between its current assets and current liabilities Whereas the Activity Ratio is a measure of movement and indicates how frequently an account has turned over during a period.It also shows how efficiently the assets of a firm are being utilized.

Liquidity ratios are those ratios which explains about the cash position of a particular company. It is used to measure short term financial position of company.Whereas the Activity Ratio indicates that how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital.

Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio and operating cash flow ratio. Current liabilities are analyzed in relation to liquid assets to evaluate the coverage of short-term debts in an emergency. Bankruptcy analysts and mortgage originators use liquidity ratios to evaluate going concern issues, as liquidity measurement ratios indicate cash flow positioning and the Activity Ratio is a measure of movement and indicates how frequently an account has turned over during a period.It also shows how efficiently the assets of a firm are being utilized. it is generate a revenue in the form of cash.

liquidity ratio measures the company's ability to meet its short term liabilities.so it a measure whether company's current assets will be sufficient to meet the obligations when they arise.That's why it is also known as short term solvency ratio.
Whereas activity ratio or turnover ratio is a measure to determine whether company's management is capable of generating enough revenues and cash from its resources.e.g how much time it takes to convert inventory into cash,how rapidly debts are collected.

Ratio is simply one number expressed in terms of another . Ratio analysis is the important tool of analyzing the financial statements for simplification of data , to locate the weak spots of the business and to assess the financial position of a business .
Liquidity ratio is simply used to assess the short term financial position of the business . It indicates the firm’s ability to meet its current obligations out of current resources . It is an important ratio in terms of management perspective as firm is always keen to know that whether it is able to pay its short term debts at the time at which it is due .
While , Activity ratio indicates the management that how efficiently the working capital and inventory is being used to obtain revenue from operations . High ratio indicates efficiency and effectiveness of management in managing the resources and leads to high profitability .

Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio and operating cash flow ratio.Bankruptcy analysts and mortgage originators use liquidity ratios to evaluate going concern issues, as liquidity measurement ratios indicate cash flow positioning.

Activity ratios measure a firm's ability to convert different accounts within its balance sheets into cash or sales.Companies typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues, so analysts perform fundamental analysis by using common ratios such as the total assets turnover ratio and inventory turnover.

Liquidity ratios determine a company's ability to pay off its short-term debt obligations and convert its assets to cash. It is important that a company has the ability to convert its short-term assets into cash so it can meet its short-term debt obligations. A healthy liquidity ratio is also essential when the company wants to purchase additional assets.
One common liquidity ratio is the current ratio. The current ratio measures a company's ability to meet its short-term debt obligations. It is calculated by dividing its current assets by its current liabilities. Generally, a higher current ratio indicates that the company is capable of paying off all of its short-term debt obligations.

Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts. Examples of such ratios include the inventory turnover ratio and the accounts receivable turnover ratio.
Activity ratios are critical in evaluating a company's fundamentals because, in addition to expressing how well a company generates revenue, activity ratios also indicate how well the company is being managed.

Both of the ratios are very very important and interdependent while analyzing a firm's position

Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts. Examples of such ratios include the inventory turnover ratio and the debtors turnover ratio.
However, when we talk about liquidity ratios, they simply assess the ability of a company to pay off its current liabilities.

Generation of revenue may or may not be in cash and so, activity ratios do not specify the generation in terms of cash. Liquidity simply focuses on the cash that is readily available for the payment of liabilities.