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Ratios Made Simple: A beginner's guide to the key financial ratios by Robert Leach

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8. Policy Ratios

8.1: Creditor Period

Definition

Creditor period = (trade creditors ÷ cost of sales) x 365

Creditor period is sometimes also known as creditor days.

Trade creditors is money the company owes to its trade suppliers on the last day of the accounting period.

It should be noted that this figure should only include creditors who supply goods which the company sells or which the company uses to make goods it sells. So other creditors should be excluded. This includes creditors who supply fixed assets, stationery, insurance and all other forms of overheads. In practice, the balance sheet may not distinguish between trade creditors and non-trade creditors. Where the non-trade creditors are small, and where they are likely ...

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