Rosa, an entrepreneur, wants to measure the overall health of her small business by using a form of ratio analysis.Her chosen method requires her to measure how often she must restock her firm's inventory, examine how quickly her firm can turn credit sales into cash, and measure the productivity of her firm's fixed assets.In this scenario, the ratio analysis method chosen by Rosa requires the measurement of her firm's ________.

Question

Quizplus · Accepted Answer

The method chosen by Rosa involves measuring the efficiency of her firm's operations, which falls under activity ratios. Restocking inventory and converting credit sales into cash are measures of inventory turnover and accounts receivable turnover, respectively. Meanwhile, measuring the productivity of fixed assets can be done through asset turnover ratios, which are also part of activity ratios. Therefore, the ratio analysis method chosen by Rosa requires the measurement of her firm's activity ratios.

Rosa, an Entrepreneur, Wants to Measure the Overall Health of Her