Debtors’ turnover ratio (Debtors, Velocity): Debtors constitute an important constituent of current assets and therefore the quality of debtors to a great extent determines a firm’s liquidity. Two ratios are used by financial analysis to judge the liquidity of a firm. They are (i) Debtor’s turnover ratio, and (ii) Debt collection period ratio.
The Debtor’s turnover ratio is calculated as under: Credit sales/ Average accounts receivable
The term Accounts Receivable include “Trade Debtors” and Bill Receivable”.
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