State the debtors turnover ratio, Managerial Accounting

Assignment Help:

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.

 


Related Discussions:- State the debtors turnover ratio

Multi-collinearity, Multi-collinearity Multiple regression analysis is ...

Multi-collinearity Multiple regression analysis is based on the assumption that the independent variables are not correlated with each other, whenever the independent variables

Public deposits, Deposits from the public are one of the important sources ...

Deposits from the public are one of the important sources of finance mainly for fine established big companies along with a vast capital base. The period of public deposits is rest

What are the advantages of activity based costing, Advantages of activity b...

Advantages of activity based costing 1) It helps understanding the behavior of overhead costs and their relations ship to products services customers and market segments. 2)

Cash budget, hi how do we find a schedule of expected cash collections

hi how do we find a schedule of expected cash collections

Determine cost pool and cost drivers, Determine Cost pool and Cost drivers ...

Determine Cost pool and Cost drivers Cost pool: it is another name given to a cost centre and,  therefore an activity cost centre may also be termed as an activity cost pool.

Case study, Anderson Nuclear Power Plant will be "mothballed" at the end of...

Anderson Nuclear Power Plant will be "mothballed" at the end of its useful life (approximately 20 years) at great expense. The expense recognition principle requires that expenses

What do you understand by marging of safety, Question: (a) A retail sto...

Question: (a) A retail store wants to evaluate how many units it must sell in order to earn a profit of Rs 10000 per month if the price of the unit is Rs 300, the average varia

Duffy tol and stamping, What are the objectives of excellence teams and min...

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

Ratio analysis, Have lot of questions please any one help me

Have lot of questions please any one help me

Decision making environment, Decision Making Environment There are four...

Decision Making Environment There are four main environments within that decisions can be done. These are: •    Certainty •    Risk •    Fundamental uncertainty •    Compet

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