Receivables turnover ratio

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Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Formula:

${\displaystyle \mathrm {Receivable\ Turnover\ Ratio} ={\mathrm {Net\ receivable\ sales} \over \mathrm {Average\ net\ receivables} }}$

A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. While a low ratio implies the company is not making the timely collection of credit.

Video Receivables turnover ratio

Relation ratios

• Days' sales in receivables = 365 / Receivable Turnover Ratio
• Average Collection Period = (Days x AR)/Credit Sales
• Average Debtor collection period: Trade Receivables/Credit Sales x 365 = Average collection period in days,
• Average Creditor payment period: Trade Payables/Credit Purchases x 365 = Average Payment period in days,

Maps Receivables turnover ratio

See also

• Debtor collection period
• Cash flow
• Working capital

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References

Source of the article : Wikipedia