Indicators of business activity are a tool for assessing the effectiveness of the core business of a business entity. The main characteristic of these indicators can be considered the speed of turnover of financial resources. The analysis of the economic activity of the subject is carried out by calculating the following ratios:
- Asset turnover, calculated as the ratio of net revenue (according to the Statement of Financial Results) to the average balance sheet currency. This coefficient characterizes the optimal use by the business entity of all available resources, regardless of the source of income.
- The turnover of receivables or payables, which is calculated by the ratio of net revenue to the corresponding average annual debt. This indicator displays the velocity of circulation of receivables (payables) of an economic entity for the analyzed period, as well as the dynamics of financial loans that are provided or received by the enterprise.
- The duration of the turnover of the above types of debts, calculated as the ratio of the length of the period under review to the corresponding ratios of the turnover of such debts. It characterizes the average repayment period of these types of debts.
- The turnover of inventories, as well as equity. Like any coefficient, the turnover of inventories is calculated by finding the ratio of the cost of production to the average cost of such inventories. Using this indicator, the characteristic of the speed of implementation of inventory items of a business entity is given. When considering the working capital ratio, the ratio of net proceeds to the average rate of equity of the subject is taken into account. This indicator measures the effectiveness of the enterprise when using equity.
- return on assets (fixed assets). The calculation is made in the form of the ratio of net revenue to the average for the year of fixed assets. Using this indicator assesses the optimality of the use of fixed assets.
In general, indicators of business activity of the enterprise characterize the general activity of the enterprise and its capabilities when promoting in the relevant market. The assessment of these indicators is carried out in comparison with the activities of similar business entities in related fields of activity.
The indicators of business activity from the position of financial activity are very closely related to such an element of performance evaluation as profitability. This coefficient shows the profitability of the subject and is a relative indicator of its results.
Indicators of business activity will allow an analysis of the effectiveness of the use of their funds. They are expressed in days, in the number of revolutions of each resource of choice for the analyzed period.
To fully characterize the activities of the enterprise, it is necessary to analyze the concept of “financial cycle”, which begins with the date of repayment of accounts payable (payment for materials to suppliers) and ends with the date of receipt of funds from the buyer for the goods shipped.
Indicators of business activity are qualitative in nature when they are characterized by: the breadth of the market for goods, the availability of exported finished products, the commercial reputation of the company, and the stability of relations with contractors. It is advisable to consider these coefficients in dynamics, i.e. match them to the pace of change. It is the ratio of the dynamics of production and resources that determines the economic growth of an economic entity.