CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis
Which ratio is calculated by dividing Net Credit Sales by Average Trade Receivables?
The ratio is the Debtors Turnover Ratio. It divides net credit sales by average trade receivables and shows how many times during the year receivables are converted into cash, indicating the efficiency of credit collection by the firm.
- ADebtors Turnover RatioCorrect
- BCreditors Turnover Ratio
- CInventory Turnover Ratio
- DFixed Assets Turnover Ratio
Explanation
Net credit sales divided by average trade receivables shows how many times receivables are collected during the year. This is the Debtors (Receivables) Turnover Ratio. Creditors turnover uses credit purchases and payables, so it is wrong.
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