Meaning Of Debtors Turnover Ratio. The stock turnover ratio determines how soon an enterprise sells its goods and products and replaces its inventories in a set duration. High and low debtor’s turnover ratio • low collection period allowed to customers.
A receivable turnover ratio of 2 would give an average collection period of 6 months (12 months / 2), and similarly, 6 would give 2 months (12 months / 6). Debtors turnover ratio formula indicates the velocity of debt collection of a firm. Debt collection period = 12 months ÷ 4 = 3 months.
