Accounts Receivable Turnover Ratio

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.

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