1. What is Debtor Turnover Ratio?

The Debtor Turnover Ratio measures how efficiently a company collects cash from credit sales. It shows how many times, on average, a company collects its accounts receivable balance during a period.

2. How Does the Calculator Work?

The calculator uses the Debtor Turnover formula:

Where:

• \( \text{Net Credit Sales} \) — Total credit sales minus returns (in dollars)
• \( \text{Average Accounts Receivable} \) — (Beginning AR + Ending AR)/2 (in dollars)

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

3. Importance of Debtor Turnover Ratio

Details: This ratio is crucial for assessing a company's credit and collection policies, liquidity position, and overall financial health.

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 Debtor Turnover Ratio?
A: It varies by industry, but generally higher is better. Compare with industry averages for meaningful analysis.

Q2: How often should this ratio be calculated?
A: Typically calculated annually, but can be done quarterly for more frequent monitoring.

Q3: What if the ratio is too high?
A: Extremely high ratios might indicate overly strict credit policies that could be limiting sales.

Q4: What if the ratio is too low?
A: Low ratios suggest inefficient collection processes or customers with poor credit quality.

Q5: How does this relate to Days Sales Outstanding (DSO)?
A: DSO = 365 / Debtor Turnover Ratio. Both measure collection efficiency but present it differently.