Accounts receivable turnover ratio defines the efficiency and capacity of a business entity in collecting its payments on the credits it rendered.
It’s the best to way analyze the health of a business. Receivable turnover ratio calculates the efficiency of a business to use its current credits to earn maximum revenue.
How to calculate receivable turnover ratio: Net credit sales / Average accounts receivable
Average accounts receivable = value of accounts receivable at beginning of a period + value at the end of the period / 2
If the receivable turnover ratio is high then it shows a strong credit sales policy of a business and if the ratio is low then it defines that the company should revise its credit sales strategy.