myz-vgb.ru A Business Encyclopedia

Debtors Turnover Ratio

Definition: The Debtors Turnover Ratio also called as Receivables Turnover Ratio shows how quickly the credit sales are converted into the cash. This ratio measures the efficiency of a firm in managing and collecting the credit issued to the customers.

One important thing that needs to be taken care of is, generally the companies use total sales in the place of net sales, which gives an inflated turnover ratio. Thus, while calculating this ratio, only the net credit sales is to be taken into consideration.

Ideally, a company compares its debtors turnover ratio with the companies that have similar business operations and revenue and lie within the same industry The formula to compute Debtors Turnover Ratio is:

Debtors Turnover Ratio = Net Credit Sales/Average Account Receivable.

Where, Average Account Receivable includes trade debtors and bill receivables.

Higher the Debtors turnover ratio, better is the credit management of the firm.

Example: Suppose a firm has total sales of Rs 5,00,00 out of which the credit sales are Rs 2,50,000. The opening balance of account receivables is Rs 2,00,000 and the closing balance at the end of financial year is Rs 1,00,000. The debtors turnover ratio will be:

Debtors Turnover Ratio = 2,50,000/1,50,000 = 1.67 times

Credit sales = 2,50,000
Average Account Receivables = (2,00,000+1,00,000) /2 = 1,50,000

Leave a Reply

Your email address will not be published. Required fields are marked *

Shares

Related pages


what is law of diminishing marginal utilitymonopolistic compititionnps fund managersscalar principle of managementequity shareholders and preference shareholderstravelling chequedefinition of bargaining power of suppliersfrank knight risk uncertainty and profitdepreciation definition in economicsnpv sensitivity analysisdefine consumer theorywhat is retrenchingleasing agreement definitionproperty of indifference curveus treasury bills definitionsocial loofingdefine moacredit rationingabsolute purchasing power parity theorymarginal costing in cost accountingmeaning of revenue deficitexamples of seasonal unemploymentfactors that influence consumer buying behaviourmethods of job evaluation in hrmcauses of cost push inflationprofitable ratioemployee performance dashboardreinforcement expectancy theorydefinition of microenvironmentdefine markup pricingdefine corporate restructuringdeontological theory ethicsduality linear programmingwhat does frictional unemployment meanexample of superegopeak load pricing examplebrand extensions examplesfour characteristics of oligopolydividend defextrapolation statistics definitionpizza hut distributiondefinition of deontologyexample of imputed costsnowball sampling methodwhat does guerrilla tactics meanoperant definitionbf skinner reinforcement theoryporters five modelmonopolies definedeposit defjob simplification definitionexplain the capital asset pricing modeldefine whistleblowing policyfrictional unemployment defineautocratic meaningdefinition of chequestypes of dividend policy in financial managementnominal group methodppf premature withdrawalstages of capital budgetingulterior defineppf public provident fundreinforcement theory of learningwhat is ansoffs matrixlpp simplex method stepsjoharri windowcompensation management meaningmanagerial defwhat is 7csorganisational restructuring definitiondefine oligopolisticdeontological and teleological theories of ethicswide meaning in teluguwhat is meant by arbitragelinear programming transportation problemordinal utilitydefinition of vmsclassical conditioning meaning