Determine the creditors turnover ratio, Managerial Accounting

Assignment Help:

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.

 


Related Discussions:- Determine the creditors turnover ratio

Starbucks project, 1) FUTURE CASH FLOWS: Prepare a three (3) year forecast ...

1) FUTURE CASH FLOWS: Prepare a three (3) year forecast of estimated future cash flows for starbucks and give valid economic/business reasons for your projections. This means you w

Multiple regression, MULTIPLE REGRESSION The least square regression eq...

MULTIPLE REGRESSION The least square regression equation discussed above was based on the assumption that total cost was determined by only one activity based variable. However

Mgt, #question1-50..

#question1-50..

What is behind the wave of mergers in the banking industry, What is behind ...

What is behind the wave of mergers in the banking industry? A: Several economic factors have caused banking institutions to merge over the past several years. These factors inc

Algebraic analysis, ALGEBRAIC ANALYSIS The supposition of linear cost b...

ALGEBRAIC ANALYSIS The supposition of linear cost behavior allows use of straight-line graphs and simple linear algebra in cost-volume study. The net cost is a semi-variable c

Classification of ratio according to significance, Classification of ratio ...

Classification of ratio according to significance   The ratios have also been classified according to their significance. Some ratios are more important than other and the fir

Cost comprise impact, Cost comprise impact Some of the policy choices w...

Cost comprise impact Some of the policy choices which tend to have the maximum impact on cost comprise: Product performance, configuration, and characteristics Mix and

Moral Law vs. Tax Law, 1. Do you think that the tax minimization scheme ...

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

Value analysis-material control, Value analysis Is a formalized techniq...

Value analysis Is a formalized technique involving a rigorous analysis of products at the design stage or at any time during the saleable lives, to determine their value charac

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd