Thursday, July 2

Accounts Receivable Turnover Ratio

Accounts receivable turnover is an efficiency ratio or action ratio which measures how often each company can turn its account receivable to cash in a period. To put it differently, the account receivable turnover ratio measures how often each company can accumulate its ordinary accounts receivable through the year.

A switch refers to every time a provider collects its typical receivables. If a firm had 20,000 of ordinary receivables throughout the year and accumulated $40,000 of money throughout the calendar year, the business could have switched its account receivable twice since it gathered twice the quantity of average Saturdays.

This ratio demonstrates how effective a company is currently amassing its own credit sales from clients. Some businesses gather their data from clients in 90 times while others take around 6 weeks to collect from clients.

In certain instances the receivables turnover ratio could be regarded as a volatility ratio also. Firms are more liquid that the quicker they could trick their receivables to cash.

Formula

Accounts receivable turnover is calculated by dividing net credit revenue by the average accounts receivable for this interval.

Accounts Receivable Turnover Ratio