Difference between liquidlty ratio and activity ration

Financial ratios are use for comparing the strength and weakness of the company. There are different types of ratios like liquidity ratio, activity ratio, etc
Liquidity ratio are the ratios use to measure the amount of cash available with the company to pays its debts in any point of time. Current, quick and cash ratios comes under liquidity ratio.
Activity or efficiency ratio measure the effectiveness in usage of resources by the company or how early is a company is able to turnover its stock into sale and increase the efficiency of the firm. Stock turnover and Assets turnover ratios are few commonly used ratios.

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


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

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.

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


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

Activity Ratios essentially evaluate the operational efficiency of any business by measuring the rate of utilization of various assets. These ratios are directly linked with the life blood of a business i.e. Revenue. The efficiency is measured in terms of generation of revenue by the respective assets. These ratios are also known as performance efficiency ratios.
Liquidity ratios measure the company’s ability to satisfy shortly maturing commitments. Much insight can be obtained from these ratios about the company’s cash solvency at present as well as its ability to remain solvent amidst adversity.

Liquidity ratios measure the short term financial position of the firm. while the activity ratios measure the efficiency and effectivenss of a firm in managing its resources and assets..
Liquidity ratios also explains about the cash position of a particular company.
Activity ratios measure a firm's ability to convert different accounts within its balance sheets into cash or sales.
Both of the ratios are very very important and interdependent while analyzing a firm's position

liquidity ratio measures the short term financial position of a company.
example:- cash or cash equivalent.
activity ratio measures a company's ability to convert different accounts within its balance sheets into cash or sales.
example:-all turnover ratios.

In the terms of accountancy "Liquidity" refers to the ability of the firm to meet its current liabilities out of current resources. The Liquidity ratios are also known as Short term solvency ratios. These ratios are used to assess the short term financial position of the business entity.
So its obviously that short term creditors of the firm are primarily interested in the liquidity ratios of the firm as they want to know how promptly or readily the firm can meet its current liabilities.
Whereas, Activity ratios are Turnover ratios, because these ratios are calculated on the basis of "cost of good sold" or "net sales". Turnover indicates how fast, how many number of times the capital employed floating, moving in the business process. These ratios indicates how efficiently the management utilizing the working capital and stock for the sales. Higher turnover ratios shows the better use of capital and resources.

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 helps to evaluate 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.

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. Generally, a higher current ratio indicates that the company is capable of paying off all of its short-term debt obligations.

The quantitative relation between two amounts showing the number of times one value contains or is contained within the other.
Accounting ratios assist in measuring the efficiency and profitability of a company based on its financial reports. Also called financial ratios, accounting ratios provide a way of expressing the relationship between one accounting values and another, which is intended to provide a useful comparison.

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Types of ratios:
As discussed in the class,ratios are categorized as:
1.LIQUIDITY RATIOS
2.ACTIVITY RATIOS
3.PROFITABILITY RATIOS
4.SOLVENCY RATIOS
5.INVESTMENT ANALYSIS RATIOS

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Liquidity ratios measure the company’s ability to satisfy shortly maturing commitments.
The basic function of the liquidity ratio is to measure a company’s capability to settle all current debt with all current available assets. The stability and financial health of a company and its efficiency in paying off debt is indicated by liquidity ratios and is of great importance to market analysts, creditors and potential investors.

The lower the liquidity ratio, the greater the chance the company is, or may soon be, suffering financial difficulty

The current ratio is one of the most frequently used liquidity ratios. It is computed by dividing the current assets by the current liabilities. The higher the current ratio, the greater is the company’s ability to pay its operating bills.
Whereas,Activity measure how effectively a firm is using its assets.
Activity ratios measure the amount of resources invested in a company's collection and inventory management. Because businesses typically operate using materials, inventory and debtors, activity ratios determine how well an organization manages these areas. Activity ratios are one major category in which a ratio may be classified.

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.

Both of the ratios are very important to analyse the position of any business.

Liquidity ratios measure the company’s ability to satisfy shortly maturing commitments. Much insight can be obtained from these ratios about the company’s cash solvency at present as well as its ability to remain solvent amidst adversity.

Activity ratio also known as efficiency or turnover ratios, activity ratios measure effectiveness of the company in using its resources. Common measures computed are receivable, payable and inventory turnover ratios.

Liquidity ratios gauge 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.In contrast to liquidity ratios, solvency ratios measure a company's ability to meet its total financial obligations.This indicates whether a company's net income is able to cover its total liabilities.

Liquidity ratios measure a company's ability to pay short-term obligations of one year or less whereas Activity ratios used to measure a business' ability to convert its assets into cash.
Liquidity Ratio provides measure of liquidity of a firm by establishing relationship between current assets and current liability BUT Activity Ratio tells how efficiently the assets are utilized with reference to sales or cost of goods sold.
Current Ratio is calculated by Current Assets and Current Liability While The Activity ratio is calculated for all the specific assets.

Liquidity ratio studies the firm short run 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 the firm by establishing relationship between current assets
and current liabilities, while Activity ratio is calculated with reference to sales or cost of goods sold.

Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety.means either firm is able to meet its current financial obligation or not.
Activity ratios measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items and are important in determining whether a company's management is doing a good enough job of generating revenues and cash from its resources.

Liquidity ratio means ability of the business to pay its short term liabilities Or Liquidity ratio means a firm is able to meet its current financial obligation...
Activity ratio,these ratios are employed to evaluate the efficiency with which the firm manages and utilises its assets.These ratios usually indicates the frequency of sales with respect to its assets..!!

Liquidity Ratio measures the short term financial position of the firm to pay its debt whereas activity ratio measures the efficiency and effectivness of the firm to manage its resources. Both the ratio are depended on each other are both are important.

Liquidity ratios measure the company’s ability to satisfy shortly maturing commitments. Much insight can be obtained from these ratios about the company’s cash solvency at present as well as its ability to remain solvent amidst adversity. The current ratio is one of the most frequently used liquidity ratios. It is computed by dividing the current assets by the current liabilities. The higher the current ratio, the greater is the company’s ability to pay its operating bills.
Whereas Activity Ratio also known as efficiency or turnover ratio, measure effectiveness of the company in using its resources. The ratio tells about the quality of the company’s collectibles and how effective the company is in collecting them. A high receivable turnover ratio indicates that company’s credit customers are creditworthy and the collection team is aggressively doing its job.

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. The liquidity ratios include the current ratio and the acid test or quick ratio. The current ratio and quick ratio are also referred to as solvency ratios.
Whereas, Activity Ratios are financial analysis tools used to gauge the ability of a business to convert various asset, liability and capital accounts into cash or sales. The faster a business is able to convert its assets into cash or sales, the more efficient it runs. Activity ratios become more meaningful when compared to industry-average activity ratios. Different industries have different industry-average activity ratios and pitting your ratios against those of peer businesses allows you to know if your ratios are better or worse.

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 measures the short term financial position of the company while activity ratio measures the efficiency and effectiveness of the firm.

Liquidity ratios measure the short term financial position of the firm. while the activity ratios measure the efficiency and effectivenss of a firm in managing its resources and assets. Both of the ratios are very very important and interdependent while analyzing a firm's position.

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.
The liquidity ratios include the current ratio and the acid test or quick ratio. The current ratio and quick ratio are also referred to as solvency ratios. Working capital is an important indicator of liquidity or solvency, even though it is not technically a ratio.
Liquidity ratios sometimes include the accounts receivable turnover ratio and the inventory turnover ratio. These two ratios are also classified as activity ratios.
whereas
Activity ratios measure a firm's ability to convert different accounts within its balance sheets into cash or sales. Activity ratios measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items and are important in determining whether a company's management is doing a good enough job of generating revenues and cash from its resources.

Liquidity ratio define company's ability to settle its short-term obligation. It is necessary for a company to maintain its liquidity because company have to convert its assets into cash so that it can meet its short term obligation.
Activity ratio means how a company generate revenue from its assets, investment and liabilities like share capital. Activity ratio also refers that how company is managed itself.

Financial ratios are use for comparing the strength and weakness of the company. There are different types of ratios like liquidity ratio, activity ratio, etc
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.

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.
The liquidity ratios include the current ratio and the acid test or quick ratio. The current ratio and quick ratio are also referred to as solvency ratios. Working capital is an important indicator of liquidity or solvency, even though it is not technically a ratio.
Liquidity ratios sometimes include the accounts receivable turnover ratio and the inventory turnover ratio. These two ratios are also classified as activity ratios.


Activity ratios are financial analysis tools used to gauge the ability of a business to convert various asset, liability and capital accounts into cash or sales. The faster a business is able to convert its assets into cash or sales, the more efficient it runs. Activity ratios become more meaningful when compared to industry-average activity ratios. Different industries have different industry-average activity ratios and pitting your ratios against those of peer businesses allows you to know if your ratios are better or worse.