Activity ratios help to evaluate which of the following?

Activity ratios are crucial in assessing how effectively a company utilizes its assets to generate revenue. The primary focus of these ratios is on the operational efficiency with which a company manages its resources, including inventory.

When it comes to inventory management, activity ratios such as inventory turnover ratio directly indicate how quickly inventory is sold and replaced over a certain period. A high turnover ratio suggests that a company is efficiently managing its inventory, converting it into sales effectively. This provides insights into operational effectiveness in managing inventory levels, minimizing holding costs, and ensuring that capital is not tied up in unsold products.

While other aspects such as revenue generation, long-term sustainability, and market competitiveness are important for a business's overall health, they are evaluated using different types of financial ratios. For instance, revenue generation capabilities are typically assessed through profitability ratios, long-term financial sustainability would involve leverage ratios, and market competitiveness involves market share and pricing strategies. Therefore, the emphasis on activity ratios is particularly aligned with operational effectiveness in inventory management.