Creditor’s Turnover Ratio is also known as Payables Turnover Ratio, Creditor’s Velocity and Trade Payables Ratio. It is an activity ratio that finds out the relationship between net credit purchases and average trade payables of a business. It finds out how efficiently the assets are employed by a firm and indicates the average speed with which the payments are made to the trade creditors. It is calculated by the following formula:

1. MANAGEMENT ACCOUNTING
RATIO ANALYSIS
BY:
SMT.UMA MINAJIGI REUR
HEAD, DEPT. OF COMMERCE & MANAGEMENT
SMT. V G DEGREE COLLEGE FOR WOMEN, KALABURAGI

2. MANAGEMENT ACCOUNTING
RATIO ANALYSIS
TURNOVER RATIOS – 3
CREDITORS TURNOVER RATIO

3. Classification of Accounting Ratio
Types of ratios are given below:
1. Liquidity Ratios
2. Leverage Ratio
3. Turnover Ratio
4. Profitability Ratio

4. Turnover Ratios or Activity Ratios or Performance Ratios
Turnover ratios are used to determine how efficiently the financial assets and
liabilities of an organization have been used for the purpose of generating revenues.
These ratios measure the operating efficiency of an enterprise.
The types of Turnover ratios are: –
1. Inventory Turnover Ratio or Stock Turnover Ratio.
2. Debtors Turnover Ratio.
3. Creditors Turnover Ratio.
4. Cash Turnover Ratio.
5. Working Capital Turnover Ratio.
6. Fixed Assets Turnover Ratio.
7. Capital Turnover Ratio or Sales to Net Worth Ratio.

5. CREDITORS TURNOVER RATIO
Creditor’s Turnover Ratio is also known as Payables Turnover Ratio, Creditor’s
Velocity and Trade Payables Ratio. It is an activity ratio that finds out the
relationship between net credit purchases and average trade payables of a business.
It finds out how efficiently the assets are employed by a firm and indicates the
average speed with which the payments are made to the trade creditors.
It is calculated by the following formula:
Creditors 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨 =
𝐍𝐞𝐭 𝐀𝐧𝐧𝐮𝐚𝐥 𝐂𝐫𝐞𝐝𝐢𝐭 𝐏𝐮𝐫𝐜𝐡𝒂𝒔𝒆𝒔
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬(𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬+𝐁/𝐏)

6. CREDITORS TURNOVER RATIO
Net Credit Purchases = Total Purchases – Cash Purchases – Purchases Returns
Calculation of Average Debtors :
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 =
𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬
𝟐
Interpretation:
Standard credit period is 30 days
If the credit period is more than 30 days it indicates that sufficient credit period
is received.
If the credit period is less than 30 days it indicates that sufficient credit period is
not received.

7. CREDITORS TURNOVER RATIO
Calculation of Average 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 (if B/P is given):
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 =
𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 + 𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐁/𝐏 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐁/𝑷
𝟐

8. AVERAGE PAYMENT PERIOD
The Average Payment Period (APP), also called as Debt Payment Period, is a
solvency ratio that measures the average number of days it takes for a business
to pay its vendors for purchases made on credit. Average payment period is
the average amount of time it takes a company to pay off credit accounts payable.
It is calculated by dividing the number of months or days or weeks by the debtors
turnover ratio.
A𝐯𝐞𝐫𝐚𝐠𝐞 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 𝐌𝐨𝐧𝐭𝐡𝐬 =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐦𝐨𝐧𝐭𝐡𝐬
𝐂𝐞𝐫𝐝𝐢𝐭𝐨𝐫𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨

9. AVERAGE PAYMENT PERIOD
A𝐯𝐞𝐫𝐚𝐠𝐞𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 𝐖𝐞𝐞𝐤𝐬 =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐰𝐞𝐞𝐤𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫
𝐂𝐞𝐫𝐝𝐢𝐭𝐨𝐫𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨
A𝐯𝐞𝐫𝐚𝐠𝐞𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 𝐃𝐚𝐲𝐬 =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫
𝐂𝐞𝐫𝐝𝐢𝐭𝐨𝐫𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨
A𝐯𝐞𝐫𝐚𝐠𝐞 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 𝐌𝐨𝐧𝐭𝐡𝐬 =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐦𝐨𝐧𝐭𝐡𝐬
𝐂𝐞𝐫𝐝𝐢𝐭𝐨𝐫𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨

10. AVERAGE PAYMENT PERIOD
A𝐯𝐞𝐫𝐚𝐠𝐞 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬
𝐍𝐞𝐭 𝐜𝐫𝐞𝐝𝐢𝐭 𝐩𝐮𝐫𝐜𝐡𝐚𝐬𝐞𝐬 𝐩𝐞𝐫 𝐝𝐚𝐲
A𝐯𝐞𝐫𝐚𝐠𝐞 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 𝐖𝐞𝐞𝐤𝐬 =
𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬
𝐂𝐫𝐞𝐝𝐢𝐭𝐩𝐮𝐫𝐜𝐡𝐚𝐬𝐞𝐬
* No. of days in a year

11. Illustration 1:
From the following information calculate Creditors turnover ratio (CTR) and Average
payment period (APP).
Total Purchases Rs.9,60,000, Cash sales 25% of Credit purchases, Creditors at
beginning Rs. 80,000, Creditors at the end Rs. 72,000. Bills payable at beginning Rs.
28,000 and B/P at the end Rs.32,000.
Calculation of Credit Purchases:
Net Credit Purchases = Total Purchases – Cash Purchases – Purchase Returns
= 9,60,000 – 25% of Credit Purchases - Nil
If Credit Purchases -- 100
Add: Cash Purchase -- 25
Total Purchases -- 125
Solution 1:

12. Total Purchases Rs.9,60,000, Cash sales 25% of Credit purchases, Creditors at beginning Rs. 80,000, Creditors at
the end Rs. 72,000. Bills payable at beginning Rs. 28,000 and B/P at the end Rs.32,000.
1. Calculation of Credit Purchases:
Net Credit Purchases = Total Purchases – Cash Purchases – Purchase Returns
= 9,60,000 – 25% of Credit Purchases - Nil
If Credit Purchases -- 100
Add: Cash Purchase -- 25
Total Purchases -- 125
If Total Purchases is 125 , Credit Purchase is 100
For Total Purchase 9,60,000 …… ?
Credit Purchases = 7,68,000
Solution 1:
=
𝟗, 𝟔𝟎, 𝟎𝟎𝟎
𝟏𝟐𝟓
∗ 𝟏𝟎𝟎 = 𝟕, 𝟔𝟖, 𝟎𝟎𝟎

13. Total Purchases Rs.9,60,000, Cash sales 25% of Credit purchases, Creditors at beginning Rs. 80,000, Creditors at
the end Rs. 72,000. Bills payable at beginning Rs. 28,000 and B/P at the end Rs.32,000.
Creditors 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨 =
𝐍𝐞𝐭 𝐀𝐧𝐧𝐮𝐚𝐥 𝐂𝐫𝐞𝐝𝐢𝐭 𝐏𝐮𝐫𝐜𝐡𝒂𝒔𝒆𝒔
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬(𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬+𝐁/𝐏)
Calculation of Average 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 (if B/P is given):
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 =
𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 + 𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐁/𝐏 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐁/𝑷
𝟐

14. Total Purchases Rs.9,60,000, Cash sales 25% of Credit purchases, Creditors at beginning Rs. 80,000, Creditors at
the end Rs. 72,000. Bills payable at beginning Rs. 28,000 and B/P at the end Rs.32,000.
2. Calculation of Average 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 (if B/P is given):
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 =
𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 + 𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐁/𝐏 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐁/𝑷
𝟐
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 =
𝟖𝟎, 𝟎𝟎𝟎 + 𝟐𝟖, 𝟎𝟎𝟎 + 𝟕𝟐, 𝟎𝟎𝟎 + 𝟑𝟐, 𝟎𝟎𝟎
𝟐
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 =
𝟏, 𝟎𝟖, 𝟎𝟎𝟎 + 𝟏, 𝟎𝟒, 𝟎𝟎𝟎
𝟐
= 𝟏, 𝟎𝟔, 𝟎𝟎𝟎
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬 = 𝟏, 𝟎𝟔, 𝟎𝟎𝟎

15. Total Purchases Rs.9,60,000, Cash sales 25% of Credit purchases, Creditors at beginning Rs. 80,000, Creditors at
the end Rs. 72,000. Bills payable at beginning Rs. 28,000 and B/P at the end Rs.32,000.
Creditors 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨 =
𝐍𝐞𝐭 𝐀𝐧𝐧𝐮𝐚𝐥 𝐂𝐫𝐞𝐝𝐢𝐭 𝐏𝐮𝐫𝐜𝐡𝒂𝒔𝒆𝒔
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬(𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬+𝐁/𝐏)
Creditors 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨 =
𝟕,𝟔𝟖,𝟎𝟎𝟎
𝟏,𝟎𝟔,𝟎𝟎𝟎
= 𝟕. 𝟐𝟓 𝐭𝐢𝐦𝐞𝐬
Creditors 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨 = 𝟕. 𝟐𝟓 𝐭𝐢𝐦𝐞𝐬
3. Calculation of Creditors Turnover Ratio :

16. AveragePayment Period Weeks =
Number of weeks in a year
Cerditors turnover ratio
AveragePayment Period Days =
Number of days in a year
Cerditors turnover ratio
Average Payment Period Months =
Number of months
Cerditors turnover ratio
4. Calculation of Average Payment Period:
A𝐯𝐞𝐫𝐚𝐠𝐞𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 𝐃𝐚𝐲𝐬 =
𝟑𝟔𝟓
𝟕.𝟐𝟓
= 𝟓𝟎. 𝟑𝟒 = 𝟓𝟎 𝐃𝐚𝐲𝐬
A𝐯𝐞𝐫𝐚𝐠𝐞𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 𝐖𝐞𝐞𝐤𝐬 =
𝟓𝟐
𝟕.𝟐𝟓
= 𝟕. 𝟏𝟕 𝐖𝐞𝐞𝐤𝐬
A𝐯𝐞𝐫𝐚𝐠𝐞 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐏𝐞𝐫𝐢𝐨𝐝 𝐌𝐨𝐧𝐭𝐡𝐬 =
𝟏𝟐
𝟕.𝟐𝟓
= 𝟏. 𝟕 𝐌𝐨𝐧𝐭𝐡𝐬

17. THANK YOU