ratioanalysis formulas -ctr-210608092153.pdf

etebarkhmichale 24 views 17 slides Oct 11, 2024
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About This Presentation

WISDOM FROM RICH DAD.
From the book Rich DAD Poor DAD, by Robert Kiyosaki

1. Don’t work for money:

Rich don’t work for money. If you work for money, your mind will start thinking like an employee. If you start thinking differently like a rich man, you will see things differently. Rich works o...


Slide Content

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

MANAGEMENT ACCOUNTING
RATIO ANALYSIS
TURNOVER RATIOS –3
CREDITORS TURNOVER RATIO

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

TurnoverRatiosorActivityRatiosorPerformanceRatios
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.
ThetypesofTurnoverratiosare:–
1.InventoryTurnoverRatioorStockTurnoverRatio.
2.DebtorsTurnoverRatio.
3.CreditorsTurnoverRatio.
4.CashTurnoverRatio.
5.WorkingCapitalTurnoverRatio.
6.FixedAssetsTurnoverRatio.
7.CapitalTurnoverRatioorSalestoNetWorthRatio.

CREDITORS TURNOVER RATIO
Creditor’sTurnoverRatioisalsoknownasPayablesTurnoverRatio,Creditor’s
VelocityandTradePayablesRatio.Itisanactivityratiothatfindsoutthe
relationshipbetweennetcreditpurchasesandaveragetradepayablesofabusiness.
Itfindsouthowefficientlytheassetsareemployedbyafirmandindicatesthe
averagespeedwithwhichthepaymentsaremadetothetradecreditors.
Itiscalculatedbythefollowingformula:
Creditors ??????�������??????����=
��������������������????????????????????????
����������������(���������+�/�)

CREDITORS TURNOVER RATIO
NetCreditPurchases=TotalPurchases–CashPurchases–PurchasesReturns
CalculationofAverageDebtors:
����������������=
����������������+����������������
�
Interpretation:
Standardcreditperiodis30days
Ifthecreditperiodismorethan30daysitindicatesthatsufficientcreditperiod
isreceived.
Ifthecreditperiodislessthan30daysitindicatesthatsufficientcreditperiodis
notreceived.

CREDITORS TURNOVER RATIO
CalculationofAverage���������(ifB/Pisgiven):
����������������=
����������������+��������/�+����������������+��������/??????
�

AVERAGE PAYMENT PERIOD
TheAveragePaymentPeriod(APP),alsocalledasDebtPaymentPeriod,isa
solvencyratiothatmeasurestheaveragenumberofdaysittakesforabusiness
topayitsvendorsforpurchasesmadeoncredit.Averagepaymentperiodis
theaverageamountoftimeittakesacompanytopayoffcreditaccountspayable.
Itiscalculatedbydividingthenumberofmonthsordaysorweeksbythedebtors
turnoverratio.
A��������??????����������������=
��������������
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AVERAGE PAYMENT PERIOD
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AVERAGE PAYMENT PERIOD
A��������??????����������=
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A��������??????����������??????����=
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* No. of days in a year

Illustration1:
FromthefollowinginformationcalculateCreditorsturnoverratio(CTR)andAverage
paymentperiod(APP).
TotalPurchasesRs.9,60,000,Cashsales25%ofCreditpurchases,Creditorsat
beginningRs.80,000,CreditorsattheendRs.72,000.BillspayableatbeginningRs.
28,000andB/PattheendRs.32,000.
CalculationofCreditPurchases:
NetCreditPurchases=TotalPurchases–CashPurchases–PurchaseReturns
=9,60,000–25%ofCreditPurchases-Nil
IfCreditPurchases --100
Add:CashPurchase--25
TotalPurchases --125
Solution1:

TotalPurchasesRs.9,60,000,Cashsales25%ofCreditpurchases,CreditorsatbeginningRs.80,000,Creditorsat
theendRs.72,000.BillspayableatbeginningRs.28,000andB/PattheendRs.32,000.
1.CalculationofCreditPurchases:
NetCreditPurchases=TotalPurchases–CashPurchases–PurchaseReturns
=9,60,000–25%ofCreditPurchases-Nil
IfCreditPurchases --100
Add:CashPurchase--25
TotalPurchases --125
IfTotalPurchasesis125,CreditPurchaseis100
ForTotalPurchase9,60,000……?
CreditPurchases=7,68,000
Solution1:
=
�,��,���
���
∗���=�,��,���

TotalPurchasesRs.9,60,000,Cashsales25%ofCreditpurchases,CreditorsatbeginningRs.80,000,Creditorsat
theendRs.72,000.BillspayableatbeginningRs.28,000andB/PattheendRs.32,000.
Creditors ??????�������??????����=
��������������������????????????????????????
����������������(���������+�/�)
CalculationofAverage���������(ifB/Pisgiven):
����������������=
����������������+��������/�+����������������+��������/??????
�

TotalPurchasesRs.9,60,000,Cashsales25%ofCreditpurchases,CreditorsatbeginningRs.80,000,Creditorsat
theendRs.72,000.BillspayableatbeginningRs.28,000andB/PattheendRs.32,000.
2.CalculationofAverage���������(ifB/Pisgiven):
����������������=
����������������+��������/�+����������������+��������/??????
�
����������������=
��,���+��,���+��,���+��,���
�
����������������=
�,��,���+�,��,���
�
=�,��,���
����������������=�,��,���

TotalPurchasesRs.9,60,000,Cashsales25%ofCreditpurchases,CreditorsatbeginningRs.80,000,Creditorsat
theendRs.72,000.BillspayableatbeginningRs.28,000andB/PattheendRs.32,000.
Creditors ??????�������??????����=
��������������������????????????????????????
����������������(���������+�/�)
Creditors ??????�������??????����=
�,��,���
�,��,���
=�.�������
Creditors ??????�������??????����=�.�������
3.CalculationofCreditorsTurnoverRatio:

AveragePaymentPeriodWeeks=
Numberofweeksinayear
Cerditorsturnoverratio
AveragePaymentPeriodDays=
Numberofdaysinayear
Cerditorsturnoverratio
AveragePaymentPeriodMonths=
Numberofmonths
Cerditorsturnoverratio
4.CalculationofAveragePaymentPeriod:
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