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:
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 ratios
- 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,[6]
See also
References
- ↑ "Receivable turnover ratio".
- ↑ 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.
- ↑ "What is the days' sales in accounts receivable ratio? | AccountingCoach". AccountingCoach.com. Retrieved 2016-02-03.
- ↑ root. "Average Collection Period Definition | Investopedia". Investopedia. Retrieved 2016-02-03.
- ↑ Edexcel Accounting general certificate of education revision guide 2012
- ↑ Edexcel Accounting general certificate of education revision guide 2012
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