1. What is Debtors Turnover Ratio?

The Debtors Turnover Ratio measures how efficiently a company collects revenue from its credit sales. It shows how many times a business can turn its accounts receivable into cash during a period.

2. How Does the Calculator Work?

The calculator uses the Debtors Turnover formula:

Where:

• Net Credit Sales — Total credit sales minus returns and allowances
• Average Accounts Receivable — (Beginning Receivables + Ending Receivables) / 2

Explanation: A higher ratio indicates more efficient collection of receivables, while a lower ratio may suggest collection problems.

3. Importance of Debtors Turnover Ratio

Details: This ratio is crucial for assessing a company's credit policies, collection efficiency, and overall liquidity. It helps identify potential cash flow issues.

4. Using the Calculator

Tips: Enter net credit sales and average accounts receivable in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Debtors Turnover Ratio?
A: The ideal ratio varies by industry. Generally, higher is better, but too high might indicate overly strict credit policies.

Q2: How is this different from Days Sales Outstanding?
A: DSO = (Average Receivables / Net Credit Sales) × Days in Period. It shows average collection period in days.

Q3: What if I don't have average receivables?
A: You can use ending receivables if beginning balance isn't available, though this may be less accurate.

Q4: Should cash sales be included?
A: No, only credit sales should be included in the numerator.

Q5: How often should this ratio be calculated?
A: Typically calculated quarterly or annually, but more frequent monitoring may help identify trends.