Skip to content

CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis

Which ratio is calculated by dividing credit purchases by average trade payables, and shows how many times the firm pays its suppliers during the year?

The creditors turnover ratio is net credit purchases divided by average trade payables. It shows how many times in a year the firm settles its suppliers. The other ratios use different numerators and denominators, such as credit sales, cost of goods sold or fixed assets.

  1. ADebtors turnover ratio
  2. BCreditors turnover ratioCorrect
  3. CInventory turnover ratio
  4. DFixed assets turnover ratio

Explanation

Creditors (payables) turnover ratio equals net credit purchases divided by average trade payables. Debtors turnover uses credit sales and receivables, inventory turnover uses cost of goods sold and average stock, and fixed assets turnover uses sales and fixed assets.

Did you get it right without looking?

One question tells you little. A timed set on Financial Analysis and Planning - Ratio Analysis shows your real accuracy, how long you take and where you lose marks.

Practise Financial Analysis and Planning - Ratio AnalysisFree diagnostic mock

More Financial Analysis and Planning - Ratio Analysis questions