Using the latest example, a company with an accounts receivable turnover ratio of 5 collects all of its receivables in 73 days, on average. On the other hand, in order to express the turnover ratio in days, which facilitates the interpretation of the ratio, the following formula can be employed:Īccounts Receivable Turnover Ratio (in days) = 365 / (Net Credit Sales / Avg. Receivables Turnover Ratio Equation in Days It also means, using the above-mentioned example, that the company has 20% of its sales tied up on receivables. For example, a ratio of 5 means that the accounts receivable have been collected 5 times during that time period. The result of this formula is expressed as the number of times net credit sales have been collected during that time period. Accounts Receivables: The average between the total accounts receivable outstanding in the beginning of the time period being evaluated and the end period. Net Credit Sales: The aggregate revenues received and paid for through commercial credit.Īvg. Accounts Receivable AR Turnover Ratio Equation Components Here’s how the account’s receivable turnover ratio formula can be calculated:Īccounts Receivable Turnover Ratio = Net Credit Sales / Avg. This makes the account receivables turnover ratio an important metric to follow up on. This is the case for wholesalers and manufacturing businesses that sell large volumes and usually have a substantial amount of money yet to be collected.Īlso, small to mid-sized businesses whose sales are highly concentrated within a handful of big clients can suffer severely from a delay in payment from any of them. On the other hand, companies are more susceptible to others when it comes to receivables. 5 Receivables Turnover Uses, Cautions, and Pitfallsīusinesses employ the account receivables turnover ratio to analyze the performance of their billing department, and also the quality of their client’s portfolio.2.2 Receivables Turnover Ratio Equation in Days.2.1 AR Turnover Ratio Equation Components.
0 kommentar(er)
