Receivables turnover ratio

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.^[1]

Formula:

${\displaystyle \mathrm {Receivable\ Turnover\ Ratio} ={\mathrm {Net\ receivable\ sales} \over \mathrm {Average\ net\ receivables} }}$^[2]

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.

Relation ratiosEdit

• Days' sales in receivables = 365 / Receivable Turnover Ratio^[3]
• Average Collection Period = (Days x AR)/Credit Sales^[4]
• Average Debtor collection period: Trade Receivables/Credit Sales x 365 = Average collection period in days,^[5]
• Average Creditor payment period: Trade Payables/Credit Purchases x 365 = Average Payment period in days,

This article uses material from the Wikipedia article  Metasyntactic variable, which is released under the  Creative Commons Attribution-ShareAlike 3.0 Unported License.