Debtors Turnover Ratio Meaning

Receivable turnover ratio or debtor turnover ratio is an activity ratio that indicates the efficiency of the company in managing its receivable balance. The accounts receivable turnover ratio also known as the debtor s turnover ratio is an efficiency ratio financial ratios financial ratios are created with the use of numerical values taken from financial statements to gain meaningful information about a company that measures how efficiently a company is collecting revenue and by extension how efficiently it is using its assets. Debtors turnover ratio formula.

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Debtor s turnover ratio is also known as receivables turnover ratio debtor s velocity and trade receivables ratio.

Debtors turnover ratio meaning. Significance of debtors turnover ratio debtors velocity this ratio indicates the degree of management of debtors or sales. The high debtors turnover ratio refers to effective management of sales or debtors and liquid of debtors and vice versa. Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. Receivable turnover ratio meaning when the company makes a sale of a product or service it often provides a certain credit period for the buyer to make the payment.

There is no rule of thumb or standard ratio for debtors turnover ratio. Meaning of debtor s turnover ratio. This ratio is expressed in times. It is an activity ratio that finds out the relationship between net credit sales and average trade receivables of a business.

Accounts receivables is the term which includes trade debtors and bills receivables. Debtors turnover ratio net credit sales average trade debtors. Debtors turnover ratio net credit sales average account receivable. A concern may sell goods on cash as well as on credit.

Where average account receivable includes trade debtors and bill receivables. The volume of sales can be increased by following a liberal credit policy. It is also known as receivables turnover ratio. The receivables turnover ratio is an accounting measure used to quantify a company s effectiveness in collecting its receivables or money owed by clients.

It helps in cash budgeting as cash flow from customers can be computed on the basis of total sales generated by a business. Credit is one of the important elements of sales promotion. In simple words it indicates the number of times average debtors receivable are turned over during a year. The ratio shows how well a company uses.

Higher the debtors turnover ratio better is the credit management of the firm. Let us make an in depth study of the meaning and types of debtors turnover ratio. Debtors turnover ratio means how well a company is managing its debtors because in normal course of business company cannot sell all its products in cash and it has to give credit to its customers but important thing while giving credit is how early company can recover the money for credit sales done by the company and debtors turnover ratio measures how quickly a company is able to collect cash from its debtors. Ratio of net credit sales to average trade debtors is called debtors turnover ratio.