Debtors' Turnover Ratio shows the relationship between credit sales and average trade debtors. Alternatively, this ratio is known as "accounts receivable turnover ratio" or "turnover of debtors' ratio". This ratio is expressed as a rate.
Purpose:
Purpose of this ratio is to.
1) Calculate the speed with which debtors get settled on an average during the year.
2) Calculate debtors' velocity to indicate the period of credit allowed to average debtors.
3) Judge how efficiently the debtors are managed.
Formula:
Components:
1) Sundry debtors
2) Accounts receivables I.e. bills receivables.
3) Average daily sales.
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