Examining Accounts: Business Ratios: Creditors to Purchases
It is possible to work out a similar ratio for creditors as that for debtors using the formula below:
- Closing Creditors / Annual Credit Purchases X 365
This gives the number of days purchases which are unpaid at the year end. From the accounts supplied you would not be able to work out cash purchases and this will distort the ratio.
How does the ratio compare with the debtors ratio? Is this the sort of trade where there is likely to be a marked difference between the terms given by suppliers and those expected from customers?
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