Average Account Receivables = (2,00,000+1,00,000) /2 = 1,50,000, Your email address will not be published. The accounts receivable turnover ratio, also known as the debtor’s turnover ratio, is an efficiency ratio Financial Ratios Financial ratios are created with the use of numerical values taken from financial statements to gain meaningful information about a company that measures how efficiently a company is collecting revenue – and by extension, how efficiently it is using its assets. This ratio measures the efficiency of a firm in managing and collecting the credit issued to the customers. These ratios are indicative of the efficiency of the trade credit management. Debtors Turnover ratio = \(\frac{Credit Sales}{Average Debtors}\) OR. Average Trade Payables = (Opening Trade Payables + Closing Trade Payables)/2. These ratios are indicative of the efficiency of the trade credit management. This ratio is complementary to the Debtor Turnover Ratio. • The company may operate majorly on the cash basis. Ques. It doesn't always point to a problem with your collections staff or policies. This ratio throws light on the effectiveness of the business in utilizing its working capital blocked in debtors. This ratio is also the ‘accounts payable turnover ratio’. Debtors Days = Trade Debtors/Monthly Turnover … Creditor’s Turnover Ratio or Payables Turnover Ratio Creditor’s turnover ratio is also known as Payables Turnover Ratio, Creditor’s Velocity and Trade Payables Ratio. Similarly, low debtors turnover implies inefficient management of debtors/sales and less liquid debtors. The speediness is being computed through debtors velocity from the ratio of Debtors turnover ratio. In other words, the accounts receivable turnover ratio measures how many times a business can collect its average accounts receivable during the year. helpful to the management because … The opening balance of account receivables is Rs 2,00,000 and the closing balance at the end of financial year is Rs 1,00,000. Receivable turnover ratio meaning When the company makes a sale of a product or service, it often provides a certain credit period for the buyer to make the payment. 1,46,000 Ideally, a company compares its debtors turnover ratio with the companies that have similar business operations and revenue and lie within the same industry The formula to compute Debtors Turnover Ratio is: Debtors Turnover Ratio = Net Credit Sales/Average Account Receivable. Debtors Turnover Ratio and Average Collection Period This ratio is a test of the liquidity of the debtors of a firm. If the problem persists, then check your internet connectivity. It indicates the number of times the debtors are turned over a year. Accounts receivable turnover ratio simply measures how many times the receivables are collected during a particular period. An efficiency ratio measures how well a company uses its assets to generate income. Example: Suppose a firm has total sales of Rs 5,00,00 out of which the credit sales are Rs 2,50,000. Allied and closely related to this is the average collection period. Lost your password? Debtors Turnover Ratio And Collection Period: One of the major activity ratios is the receivables or debtors turnover ratio. A receivable turnover ratio is one of the key turnover ratios used to analyze the performance of a business. It is a helpful tool to evaluate the liquidity of receivables. While the accounts receivable turnover ratio provides insight into the collection management of a company, it is best used as an informational tool. As one measure of this efficiency, the accounts receivable turnover ratio, which is often known as debtors turnover ratio, allows you to calculate how often a business collects its outstanding customer payments on an annual basis.. • High collection period allowed to customers. Debtor’s Turnover Ratio or Receivables Turnover Ratio Debtor’s turnover ratio is also known as Receivables Turnover Ratio, Debtor’s Velocity and Trade Receivables Ratio. Definition: The Debtors Turnover Ratio also called as Receivables Turnover Ratio shows how quickly the credit sales are converted into the cash. Accounts receivable turnover is calculated by dividing net credit sales by the average accounts receivable for that period.The reason net credit sales are used instead of net sales is that cash sales don’t create receivables. A turn refers to each time a company collects its average receivables. 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