It can also indicate that a business is cautious about providing credit to its consumers. Higher ratio may also indicate that the company has a conservative credit policy, such as net-20 or even net-10 days. A high accounts receivable turnover also shows that the business has a credible customer base that pays its debts without any delay. A high ratio is preferable since it implies that the company’s accounts receivables are collected on a regular and efficient basis. The accounts receivable turnover ratio is a financial and operational efficiency statistic that measures a company’s financial and operational performance. Recommended Read: Portfolio Turnover Ratio Interpretation Accounts Receivable Turnover Ratio High Accounts Receivable Turnover Ratio Rs 4,20,000Rs 5,00,000 – Rs 60,000 – Rs 20,000Īccounts Receivable Turnover RatioNet Credit Sales / Average Accounts Receivable Net Credit SalesTotal Credit Sales – Sales Returns – Discounts
Days account receivable turnover how to#
The following is an example of how to calculate the accounts receivable ratio: ParticularsĪverage Accounts Receivable(Accounts Receivable at the Beginning of the Year + Accounts Receivable at the End of the Year) / 2
To calculate the accounts receivable turnover ratio, you need to first calculate the net sales and average accounts receivable. Net Sales = Total Credit Sales – Sales Returns – Sales Discountsĭebtors or Accounts Receivable Turnover in Days = (1 / Debtors or Accounts Receivable Turnover Ratio) * 365 How to Calculate Accounts Receivable Turnover Ratio? The formula for the Accounts Receivable Turnover Ratio is:Īccounts Receivable Turnover Ratio – Net Credit Sales / Average Accounts ReceivableĪverage Accounts Receivable = (Accounts Receivable at the Beginning of the Year + Accounts Receivable at the End of the Year) / 2 Child Education Accounts Receivable Turnover Ratio Formula
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