What is the creditor's ratio?

The creditor's ratio is a reflection of how fast society pays to its creditors. This is also known as the ratio of turnover due. Low turnover means that the company takes longer than the company pays the creditor, while the high turnover reflects the rapid processing of credit accounts. Changes in the creditor's turnover ratio can provide information about the company's financial situation.

credit purchases are the basis of many sectors. Companies rely on a loan for the purchase of goods and services and repayment of the loan when they are able to sell products or proceed forward with economic activities as a result of the services they receive. Many companies offer credit for variable conditions and ability to keep step with creditors and control debt is important for the long -term financial success of the company. Internal accounting can determine the creditor's ratio and a change in the symptom that may be concerned. This may be the result of poor liquidity, low sales or other problems. A continuing decline may be a reason for concern because the indicationUsing that the company cannot control its debt and may be at risk of bankruptcy. When the ratio increases, the company retires rapidly. The consistent ratio shows balanced financial planning so that the installments become consistent, although if this ratio is low, this may indicate that the company may be directed towards financial problems.

There are a number of ways to calculate the creditor's turnover ratio. One option is to divide the annual net credit transactions with average accounts due. Companies can also perform the opposite and look at what percentage of the total loan per year represent average payable accounts. For example, if the Company performs $ 100.00 in the US (USD) in credit transactions and carries an average debt of $ 20,000, the Credipometer Tor Corps can be 5 or 1/5 (20%), depending on how the company calculates it.

In this example, the company switches its debts five timesannually and keeps step with creditors. If the Company begins to transmit a debt of $ 50,000 at the moment, the creditor's ratio to 2 or 1/2 (50%), which is a reason for concern. On the contrary, the company could only start maintaining $ 10,000 on accounts due. This would cause the ratio to increase to 10 or 1/10 (10%), which is a positive sign.