Determine the creditors turnover ratio, Managerial Accounting

Creditors turnover ratio ( or payables turnover ratio)

Meaning: this ratio establishes a relation ship between net credit purchases and average trade creditors.

Objective: the objective of computing this ratio is to determine the efficiency with which the creditors are managed.

Components: there are two components of this ratio which are as under:

Net credit purchase

Average trade creditors

Computation: the average payment period ratio show the average number of days taken by the firm to pay its creditors. Generally lower the ratio the improved is the liquidity position of the firm and higher the ratio less liquid is the position of the firm. But a higher payment period also implies greater credit period enjoyed by the firm and consequently larger the profit reaped from credit suppliers. But one has to be careful in interpreting this ratio as higher ratio may also imply lesser discount facilities availed or higher prices paid for the goods purchased on credit. To make correct interpretation of this ratio a comparative analysis of different firm in the same industry and the trend may be found for various years.

 

Posted Date: 7/8/2013 8:11:21 AM | Location : United States







Related Discussions:- Determine the creditors turnover ratio, Assignment Help, Ask Question on Determine the creditors turnover ratio, Get Answer, Expert's Help, Determine the creditors turnover ratio Discussions

Write discussion on Determine the creditors turnover ratio
Your posts are moderated
Related Questions
Advantages of Value Added Statements 1) Managers might be in a better position to control their organizations own inputs than the cost and usage efficiency of purchased materia

select any manufacturing company of your choice that produces any product. describe and compare the marginal and absorption costing system used in the selected company

What are the objectives of excellence teams and minicompanies? Did the companies achieve these objectives?estion #Minimum 100 words accepted#

Explain the Ratio analysis according to kosher A ratio is the relation of the amount a to another b expressed as the ratio of a to b; a: b (a is to b) or a as simple fraction i

1. Do you think that the tax minimization scheme described to Debbie Kishimoto is in harmony with the ethical behavior that should be displayed by top corpo- rate executives? Wh

Hi there, i am looking an expert to make my assignments for this subject and i do have other subjects as well. Let me know how you can go through my assignment.

what is Long term budgets Long term budgets: The budgets are prepared to depict long term planning of the business. The period of long term begets various between five to ten

#questioExercise 3-12 Computing Predetermined Overhead Rates and Job Costs [LO1, LO2, LO3, LO7] Kody Corporation uses a job-order costing system with a plantwide overhead rate base

Describe breadth indicators and market sentiment indicators? 1. Distinguish among technical and fundamental analysis. As well explain essential concepts underlying chart analys

ABC Analysis (Pareto Analysis) In ordinary parlance, ABC analysis can be best compared with our class society where the population is categorized into Top, Middle and Lower cla