How is Debtors Turnover defined?

Debtors Turnover is defined as a measure of how effectively a company is managing its receivables and is specifically focused on the time it takes for debtors to pay back their debts. This ratio helps businesses understand how quickly they are able to convert credit sales into cash.

The significance of this measure lies in its ability to indicate the efficiency of the company in collecting funds from credit sales. A lower turnover ratio may suggest that the company is facing difficulties in collecting debts, which can lead to cash flow issues, while a higher ratio indicates that the company is efficient in collecting payments from its debtors. This timely collection is crucial for maintaining healthy cash flow and overall business viability.

In contrast, the other options do not accurately define Debtors Turnover. The first choice references the amount of credit extended, which is not the core focus of the ratio. The total sales on credit is more related to sales figures rather than the collection process. Efficiency of cash management, while relevant in a broader financial context, does not specifically pinpoint the action of collecting debts from debtors. Thus, the correct definition focuses on the pivotal aspect of the time frame involved in debtor repayments.