What does the activity ratio measure?

The activity ratio measures the efficiency with which a company utilizes its assets to generate sales or revenue. It encompasses various financial metrics that assess how well a company is managing its resources. In this context, the correct choice focuses on the effectiveness of managing credit, which is a key aspect of how a business engages in and controls its accounts receivable.

By examining how efficiently a company collects its debts and manages credit, the activity ratio provides insights into operational effectiveness. This in turn impacts cash flow and profitability. A higher activity ratio often indicates that a company is effectively converting credit sales into cash, showing a strong command over its credit policies and collection processes.

While the other options touch upon various aspects of business performance, such as profits, inventory management, and general investment performance, none specifically address the measurement of how effectively a company manages credit-related operations. The activity ratio's primary focus aligns directly with this concept, reinforcing the importance of efficient credit management in overall company performance.