What is the business activity of the company

Financial stability and sustainability of the company depends largely on its business activity. It can be evaluated by quantitative and qualitative criteria.

Quantitative estimation of business activity

In the financial sense, the business activity of the company is evident in the turnover of its funds. In this regard, the analysis of the business activity and efficiency of doing business is used the dynamics of the indicators (factors) of turnover. Their importance for the enterprise is determined by a number of reasons. First, the speed of the circulation depends on the size of the company's revenues. Second, the size of the circulation depends on the relative importance of fixed costs, the higher revenue, the lower the fraction of the cost. Third, a turnover increase of one stage, leads to its acceleration on the other. In General, solvency and profitability of the company depends directly on how quickly investments in assets are transformed into real money.

There is a spectrum of ratios of turnover. Among them are the rate of turnover of assets and equity capital, fixed assets and inventories accounts receivable accounts payable and debt.

The asset turnover ratio (capital) indicates the rate of turnover of capital of the company or how much money is brought in each unit of assets. It is calculated as the ratio of net revenue to average value of assets (value of capital).

The turnover ratio of current assets shows the ratio of revenues to working capital. If this figure decreases, it signals the slowing down of the circulation of money.

The turnover ratio of receivables is estimated by the ratio of revenues to the average amount of debt. It reflects how many times turned the funds invested in accounts with consumers. A high reading indicates a rapid acquisition of the company payment of the bills.

The turnover for accounts receivable is to compare with similar - accounts payable. The last factor displays the extension (reduction) of commercial loans that were provided to the company. Its growth indicates that the rate of purchases by the enterprise grows, the decrease indicates an increase in acquisitions on credit.

The turnover ratio of inventories is reflected in the number of revolutions of the enterprise's reserves. Its decline shows the growth of work in progress or the decline of demand for products. The higher the rate of turnover of inventory, the more stable the financial position of the company.

It is calculated as the ratio of cost of goods sold to value inventory.

Turnover ratio fixed assets also called return on assets. It displays the ratio of net revenue to asset value. On the basis of this ratio to judge the efficiency of use of fixed assets.

Quantitative assessment of business activity can include an analysis not only of relative but also in absolute figures. The latter include, in particular, the amount of capital, of sales and profit, as well as their dynamics.

A qualitative assessment of business activity of an enterprise

Assessment of business activity on the quality criteria involves the use of non-formalised indicators. They include the market (volume and growth), export potential of products, financial activities, labor market. Include in their number the company reputation, number of clients, level of fame.

The increase in business activity of a company can manifest itself in the expansion of geography of sales, assortment of product lines, professional development of employees, the efficiency of use of raw materials. Events for the growth of business activity, typically require substantial capital expenditure, which pay off only in the long run. They include, for example, the reorganization and expansion of production, overhaul, and product range extension.