[MUSIC]

Last time, we saw a number of profitability ratios.

In this video, we will look at some of the common activity ratios,

like total asset turnover.

Fixed asset turnover, working capital turnover, days receivables outstanding,

days inventory held, days payable outstanding, and cash conversion cycle.

Activity ratios measure a company's ability to convert assets and

liabilities into cash or sales.

The faster it is able to do this, the more efficiently the company is run.

The first activity ratio is the total asset turnover.

It measures how efficiently a company uses all its assets to generate revenues.

It is defined as revenues divided by average total assets.

Amazon's revenues in 2015 were $107.01 billion and

its average total assets were $59.97 billion.

This gives its total asset turnover to be 1.78.

Every dollar in total assets generates $1.78 in revenues.

This ratio has worsened for

Amazon over the last 4 years as it was over took in 2012.

However, the drop in total asset turnover may be indicative of Amazon

investing in more assets with an eye towards future growth.

These long-term investments and

assets may reduce total asset turnover in the short-term.

The average total assets have actually doubled over the last four years, so

the decrease in total asset turnover may not be indicative

of Amazon's worsening efficiency.

The next activity ratio is the fixed asset turnover,

this is similar to the total asset turnover, but specifically measures how

efficiently a company uses its fixed assets to generate revenues.

Amazon's fixed assets include investments in plant property and equipment, PP and

E, goodwill, and other intangible assets.

It's average fixed assets in 2015 were $22.94 billion.

At revenues of $107.01 billion by $22.94

billion gives us a fixed asset turnover of 4.66.

For every $1 invested in fixed assets, Amazon generates $4.66 in revenue.

Similar to total fixed turnover,

Amazon's fixed asset turnover has decreased over the last four years.

This, again,

is not necessarily bad, as its fixed assets have almost tripled in four years.

Amazon may have invested more in fixed assets with the focus on future growth.

The remaining activity ratios are related to a company's current assets and

liabilities.

The first of which is working capital turnover.

It is defined as the ratio of revenues to average working capital.

Working capital measures a company's operating liquidity.

It tells us if the company has sufficient operations-related current assets

to pay off its operations-related current liabilities.

It is calculated as accounts receivables plus inventory minus accounts payables.

Working capital turnover indicates a companies effectiveness in

using its working capital.

That is, does it generate enough revenues using its working capital?

Amazons average working capital in 2015 was a -$3.14 billion.