Receivables Turnover Ratio

Receivables turnover ratio (sometimes called accounts receivable turnover) is an accounting term and a means of evaluating the viability of any corporation, limited liability company (LLC), or partnership that expands credit and gathers debt on that credit. The ratio is communicated by partitioning the net value of credit sales in a period by the average accounts receivable in that equivalent period.

Highlights

• The accounts receivable turnover ratio is an accounting measure used to evaluate how efficiently a company is in gathering receivables from its clients.
• A low ratio could be the consequence of inefficient assortment processes, deficient credit policies, or customers who are not monetarily practical or creditworthy.
• Investors ought to be careful that a few companies utilize total sales instead of net sales to work out their ratios, which might swell the outcomes.
• A high ratio might show that corporate assortment rehearses are efficient with quality customers who pay their debts rapidly.
• The ratio likewise measures the times that receivables are switched over completely to cash during a certain time span.