9/22/2016

DebtorTurnoverRatio|AccountingEducation

Home

managementaccounting

ratioanalysis

Debtor Turnover Ratio

0

VinodKumar

November14,2011

MeaningDebtorTurnoverratio
Debtorturnoverratioistherelationshipbetweennetsalesandaveragedebtors.Itisalsocalledaccount
receivableturnoverratiobecausewedebtorandbillreceivables'totalisusedforfollowingformula
=NetCreditSales/AverageDebtors(sundrydebtors+billreceivables)

AverageDebtors=Openingbalanceofdebtors+closingbalanceofdebtors/2

NetCreditSales=Totalsalessalesreturncashsales
Ifnetcreditsalesis$50000andaveragedebtorsare$10000,thendebtorturnoverratiois5times.Itmeans,
netsalesis5timesoftotaldebtors.Weissuenewstockforsalewhichis5timesofitsdebtors.Itmeans,our
averagedebtors5timesareconvertedintocash.Wecollectedcashfromourdebtorsandthenwesellthemore
goods.
InterpretationofDebtorTurnoverRatio
1.Higherdebtorturnoverratioisgoodbecausemorehigherdebtorturnoverratiomeans,morefastly,weare
collectingmoney.Suppose,inaboveexample,wehaveonlyonedebtorMr.Alfred.Wesold$50000goods5
http://www.svtuition.org/2011/11/debtorturnoverratio.html

1/2

9/22/2016

DebtorTurnoverRatio|AccountingEducation

times.Itmeans,wearecollectingmoneyfromAlfred5times.Moretimes,wecollectmoneyfromMr.Alfred,our
liquiditypositionwillbecomemorestrong.
2.Lowerdebtorturnoverratioisnotgoodbecauseittellsusthatwehavenotmanagedebtorsbetterways.
Moneyfromdebtorsarenotcollectedfastly.
Ifwecalculateaveragecollectionperiodonthebasisofdebtorturnoverratio,wecananalyzeourdebtorsmore
deeply.
Related:WorkingCapitalTurnoverRatio
ShareaboveContenttoYourFriends

Like 15

Tweet

20082016AccountingEducationAllrightsreserved.

http://www.svtuition.org/2011/11/debtorturnoverratio.html

2/2