Meaning Debtors Turnover Ratio

The high debtors turnover ratio refers to effective management of sales or debtors and liquid of debtors and vice versa. It is an activity ratio that finds out the relationship between net credit sales and average trade receivables of a business. Debtors turnover ratio net credit sales average trade debtors.

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Ratio of net credit sales to average trade debtors is called debtors turnover ratio.

Meaning debtors turnover ratio. Debtors turnover ratio formula. Let us make an in depth study of the meaning and types of debtors turnover ratio. It is also known as receivables turnover ratio. Accounts receivables is the term which includes trade debtors and bills receivables.

The accounts receivable turnover ratio also known as the debtor s turnover ratio is an efficiency ratio that measures how efficiently a company is collecting revenue and by extension how efficiently it is using its assets. Debtor s turnover ratio is also known as receivables turnover ratio debtor s velocity and trade receivables ratio. The ratio shows how well a company uses. Debtors turnover ratio it is the ratio which calculates the quickness of the conversion of the debtors or credit sales amount to cash.

Accounts receivable turnover ratio simply measures how many times the receivables are collected during a particular period. Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. There is no rule of thumb or standard ratio for debtors turnover ratio. It helps in cash budgeting as cash flow from customers can be computed on the basis of total sales generated by a business.

Meaning of debtor s turnover ratio. In simple words it indicates the number of times average debtors receivable are turned over during a year. Where average account receivable includes trade debtors and bill receivables. Debtors turnover ratio net credit sales average account receivable.

A concern may sell goods on cash as well as on credit. The receivables turnover ratio is an accounting measure used to quantify a company s effectiveness in collecting its receivables or money owed by clients. This ratio indicates the degree of management of debtors or sales. It is also known as the receivables turnover ratio as it measures the credit sales against the average debtors for a year.

Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy. This ratio is expressed in times. Receivables turnover ratio also known as debtors turnover ratio is computed by dividing the net credit sales during a period by average receivables.

Higher the debtors turnover ratio better is the credit management of the firm. It is a helpful tool to evaluate the liquidity of receivables.