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:

$\mathrm{Receivable\ Turnover\ Ratio} = {\mathrm{Net\ receivable\ sales}\over\mathrm{Average\ net\ receivables}}$^[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.

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

• Debtor collection period
• Cash flow
• Working capital

References

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