Question

From the following data of Retail Ltd., calculate Stock Turnover & Debtors Turnover Ratio : Cost of Goods Sold - Rs.280,000; Average Stock - Rs. 40,000; Credit Sales - Rs. 400,000; Debtors - Rs. 80,000

Answer 1

Explanation:

This is an extension of the earlier ratio to denote the effectiveness of the collection department in terms of duration.

Debtors velocity= 365days/52weeks/12months

Debtor turnover ratio

Standard norm of the ratio

Lesser the duration shows greater the effectiveness in collecting the dues which means that the collection department takes only minimum period for collection and vice versa.