Debtor Turnover Ratio – Concept, Formula & Simple Example

Debtor Turnover Ratio tells you how efficiently a firm collects money from its customers. In simple words, it shows how many times debtors are converted into cash during a year.

Why this ratio matters

• Directly linked to liquidity
• Frequently asked in bank exams
• Indicates quality of credit policy

Formula

Debtor Turnover Ratio = Credit Sales / Average Trade Debtors

Average Trade Debtors = (Opening Debtors + Closing Debtors) ÷ 2

Simple Example

Particular	Amount (₹)
Credit Sales	10,00,000
Opening Debtors	1,80,000
Closing Debtors	2,20,000

Average Debtors = (1,80,000 + 2,20,000) ÷ 2 = 2,00,000

Debtor Turnover Ratio = 10,00,000 ÷ 2,00,000 = 5 times

How to write the interpretation in exam

The firm collects its dues approximately 5 times during the year, indicating a reasonably efficient collection policy.

Exam Tips

1. Use only trade debtors unless specified otherwise
2. If cash sales are given, exclude them
3. Answer interpretation in one clear line

Related Topics

• Creditor Turnover Ratio
• Current Ratio
• Quick Ratio