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Debtors Turnover Ratio

It is determined by dividing the net credit sales by average debtors outstanding during the year. Thus,

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Net credit sales consist of gross credit sales minus returns, if any, from customers. Average debtors is the simple average of debtors (including bills receivable) at the beginning and at the end of year. The analysis of the debtors turnover ratio supplements the information regarding the liquidity of one item of current assets of the firm. The ratio measures how rapidly receivables are collected. A high ratios indicative of shorter time-lag between credit sales and cash collection. A low ratio shows that debts are not being collected rapidly.

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