abhishreshthaa
Abhijeet S
It comments on the efficiency of credit management or collection from debtors.
If credit sales are not known, use the net sales.
Significance:
1. It indicates the rate at which debtors are converted to cash.
2. Helps in formulating the credit policy by indicating whether investment in debtors is within limits
3. Indicates if capital is blocked in slow paying debtors.
Standard:
Again it is difficult to establish a standard since it differs from industry. Generally it is higher in FMCG industries and lower in capital goods or consumer durable industries.
A high DTR indicates effective credit management but may also mean loss of sales due to a strict credit policy. A low DTR indicates a lenient credit policy, over investment in debtors or slow paying debtors. However, it may also result in higher sales.
If credit sales are not known, use the net sales.
Significance:
1. It indicates the rate at which debtors are converted to cash.
2. Helps in formulating the credit policy by indicating whether investment in debtors is within limits
3. Indicates if capital is blocked in slow paying debtors.
Standard:
Again it is difficult to establish a standard since it differs from industry. Generally it is higher in FMCG industries and lower in capital goods or consumer durable industries.
A high DTR indicates effective credit management but may also mean loss of sales due to a strict credit policy. A low DTR indicates a lenient credit policy, over investment in debtors or slow paying debtors. However, it may also result in higher sales.