Accounts Receivable Turnover Ratio Calculator
Measure how efficiently you collect receivables
Total credit sales minus returns/allowances
(Beginning AR + Ending AR) ÷ 2
Accounts Receivable Turnover Formula
Accounts Receivable Turnover Ratio = Net Credit Sales ÷ Average Accounts Receivable
Understanding the Formula:
The Accounts Receivable Turnover Ratio is a crucial financial metric that measures how efficiently a company collects revenue from its credit customers. It shows how many times a business can convert its accounts receivable into cash during a specific period.
Key Components:
- Net Credit Sales: Total sales made on credit minus any returns or allowances. This should exclude cash sales as they don't create receivables.
- Average Accounts Receivable: Calculated as (Beginning Accounts Receivable + Ending Accounts Receivable) ÷ 2 for the period being analyzed.
Why It Matters:
A higher ratio indicates that the company is collecting its receivables more frequently throughout the year, which is generally positive . A lower ratio may suggest issues with collection policies or credit terms that are too lenient.