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

Capital budgeting – planning investments, Project C would involve a current...

Project C would involve a current outlay of $50,000 on equipment and $15,000 on working capital. The investment in working capital would be increased to $21,000 at the end of the f

Difference between direct labour and indirect labour, Difference between Di...

Difference between Direct labour and Indirect labour Direct labour:- Labour which plays an active and direct part in the production of a particular commodity is called di

Classification of costs, discuss which of the cost classification is suitab...

discuss which of the cost classification is suitable for LunchBreak LTD and why?

What are the limitation of break even charts, Limitation of break even char...

Limitation of break even charts Despite many advantages a break even chart suffers from the following limitations: 1) A break even chart is based upon a number of assumption

Mr, i want to get the answer for exercises 2.1 and 2.2 on strategic and tac...

i want to get the answer for exercises 2.1 and 2.2 on strategic and tactical decisions

What value can management derive from a balance scorecard, What value can m...

What value can management derive from a Balance Scorecard? How does the management accountant contribute?

Support each classification with appropriate rationale., For this assignmen...

For this assignment, please complete and submit Task 1 and Task 2 as described below. Task 1: Classifying Cash Flows The following are transactions, events, and changes in balances

#, Describe the important role that the corporate level strategy has in rel...

Describe the important role that the corporate level strategy has in relation to the development of the business and functional strategy in a multi -business organization

Determine the phases of product life cycle, Phases of product life cycle ...

Phases of product life cycle The life cycle of a product having of four phases viz., introduction growth maturity decline during introduction phase a product is launched into

Mgt acc., companyXYZusesthe job oder costing system.

companyXYZusesthe job oder costing system.

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