State the debtors turnover ratio, Managerial Accounting

Debtors turnover ratio( or receivables turnover ratio)

Meaning: this ratio establishes a relation ship between net credit sales and averages trade debtors.


Objective: the objective of computing this ratio is to verify the efficiency with which the trade debtors are managed.


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

           Net credit sales

           Average trade debtors

 Computation: this ratio is computed by dividing the net credit sales by average trade debtors. This ratio is usually expressed as x number of times. In the form of a formula this ratio may be expressed as under:

Net credit sales = gross credit sales -sales returns

Interpretation: it shows the number of times the debtors are turned over during a year. Generally the higher the value of debtors' turnover the more efficient is the management of debtors or more liquid is the debtors. Similarly low debtor's turnover implies inefficient management of debtors/sales and less liquid debtors a very high ratio may imply a firm inability due to lack of resources to sell on credit there by losing sales and profits. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different form firm to firm depending upon the nature of business. This ratio should be compared with ratio of other firm doing similar business and a trend may also be found to make a better interpretation of the ratio.


Posted Date: 7/8/2013 8:13:39 AM | Location : United States

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

Write discussion on State the debtors turnover ratio
Your posts are moderated
Related Questions
LIMITATIONS OF ABC ANALYSIS However ABC analysis is a basic tool for exercising selective control over many inventory items, it does not, in its current form, allow precise con

Classification and computation of variances The computation and analysis of variances is the main aim of standard costing. The variance is the difference among the standard pe

the suitability of incremental budgeting to a stable and static environment

Compute the equ units of production?

Absorption cost Absorption, or full cost systems, transfer the full cost of the supplying department to the receiving department. Where a profit is to be allowed to the supplyi

Ranking of Decision Packages The ranking procedure is employed to establish a rank priority of decision packages in the organization. Throughout the ranking procedure managers

Importance of a budget A Budget is a plan expressed in monetary terms. It is prepared prior to the budget period and may show income, expenses and the capital to be used i.e. a

In the current corporate world, this is a common practice of companies along with surplus cash to lend to another company for a short period generally ranging from 60 days to 180 d

On 1st January, 2005 the Board of Directors of Paushak Limited needed to identify the amount of working capital needed to meet the programme they have arranged for the year. From t