Jump to content

Receivables turnover ratio

From Wikipedia, the free encyclopedia
(Redirected from 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:

[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.

A good accounts receivable turnover depends on how quickly a business recovers its dues or, in simple terms how high or low the turnover ratio is. For instance, with a 30-day payment policy, if the customers take 46 days to pay back, the Accounts Receivable Turnover is low.

Relation ratios

[edit]
  • Days' sales in receivables = 365 / Receivable turnover ratio[3]
  • Average collection period = Days × AR/Credit sales[4]
  • Average debtor collection period = Trade receivables/Credit sales × 365 = Average collection period in days,[5]
  • Average creditor payment period = Trade payables/Credit purchases × 365 = Average Payment period in days,[6]

See also

[edit]

References

[edit]
  1. ^ "Receivable turnover ratio".
  2. ^ Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 801.
  3. ^ "What is the days' sales in accounts receivable ratio? | AccountingCoach". AccountingCoach.com. Retrieved 2016-02-03.
  4. ^ root. "Average Collection Period Definition | Investopedia". Investopedia. Retrieved 2016-02-03.
  5. ^ Edexcel Accounting general certificate of education revision guide 2012
  6. ^ Edexcel Accounting general certificate of education revision guide 2012