Debtors Turnover Ratio Examples

Definition: Debtors turnover ratio (or Accounts receivable turnover ratio) indicates how long, on average, people take to pay a firm for their purchases. Generally the higher the ratio, the more efficient is the management of debtors.

Formula:
Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors
Or,
Debtors Turnover Ratio = Total Sales / Debtors

Example 1:
XYZ Ltd has the following data: Credit sales $52,000; Sales returns $2,000; Bills Receivables $10,000; Debtors $15,000.
Then, the debtors turnover ratio = (52,000 - 2,000) / (10,000 + 15,000) = 2 times

Example 2:
The following information relates to Emily Ltd:
Debtors at 1 January 2010: $45,000
Total sales (include cash sales of $28,000): $78,000
Debtors at 31 December 2010: $25,000
Calculate the accounts receivable turnover ratio.

Solution:
Net Credit Sales = Total sales - Cash sales = 78,000 - 28,000 = $50,000
Average Trade Receivables = (45,000 + 25,000) / 2 = $35,000
Accounts receivable turnover ratio = 50,000 / 35,000 = 1.43 times

* Next: Inventory Turnover Ratio Examples

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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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