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Creditors Turnover Ratio

This ratio shows the relationship between credit purchases and creditors including bills payable. It is computed by dividing net credit purchases by the average creditors as shown below:

Net Credit Purchases/ Average Creditors

Where, Net Credit Purchases = Gross Credit Purchases – Purchases Returns; Creditors = Creditors + Bills Payable. As a rule, average monthly balances of creditors and bills payable should be used in computation since such a procedure takes into account the seasonal fluctuations. However, if this data are nog available, the year-end balances are used. This ratio indicates the frequency with which the debts are paid by a business enterprise.

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