19.2.4.b. Debtors Turnover Ratio Formula

Try these first

1. 1.

   What is the Debtors Turnover Ratio formula?

   Hint

   Think about what each component measures.

2. 2.

   True or False: A lower Debtors Turnover Ratio indicates effective collection practices.

   Hint

   Consider what a low ratio might signify.

3. 3.

   What is the purpose of the Debtors Turnover Ratio?

   • To measure inventory efficiency
   • To assess collection efficiency
   • To calculate total revenue

   Hint

   It’s linked to credit sales.

4. 4.

   True or False: A Debtors Turnover Ratio of 6 implies the company collects its debts six times a year.

   • True
   • False

   Hint

   Think about what the numerator and denominator represent.

5. 5.

   A tech company reports that it had net credit sales of $2,000,000 but its average accounts receivable is$500,000 over a year. Discuss the implications of this ratio for the company’s liquidity.

   Hint

   How does this ratio reflect on the company’s cash flow?

6. 6.

   A company’s Debtors Turnover Ratio has dropped from 6 to 4 over the previous year. Evaluate the possible reasons for this decline and its potential impact on the company's financial health.

   Hint

   Consider market conditions and company policies.