Debtors Turnover Ratio:

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Dr Debra Munsterman Minnesota West College

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Presentation transcript:

Debtors Turnover Ratio: Definition: Debtors turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Formula of Debtors Turnover Ratio: Debtors Turnover Ratio = Credit Sales Average Receivable

CALCULATION DEBTORS TURNOVER RATIO = 2,61,76,594 =2,31,72,131 = 2,61,76,594 =2,31,72,131 4,63,255 286070 =56.51 times =81 times

Significance of the Ratio: This ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are and vice-versa. It is the reliable measure of the time of cash flow from credit sales.

Debt Collection Period DCP = Accounts receivable * 365 Credit sales For 2008 For 2007 = 4,63,255 X 100 = 2,86,070 X 100 2,61,76,594 2,31,72,131 DCP = 7 days DCP = 5 days