Accounts receivable turnover ratio

Accounts receivable turnover ratio ( also known as debtors turnover ratio) shows the effectiveness of the company’s credit control system.

Much like inventory turnover ratio, accounts receivable turnover ratio shows how many times in a year debtors are given credit and they fully repay it. It is calculated as follows:

Formula of Accounts receivable turnover ratio

Accounts receivable turnover ratio

Example

The Fine company sells goods on credit. The following data belongs to most recent period:

  • Net sales: $4,800,000
  • Accounts receivable at the beginning of the year: $1,000,000
  • Accounts receivable at the end of the year: 800,000

ComputeĀ accounts receivable turnover ratio of the Fine Trading Company.

Solution:

Accounts receivable turnover ratio = Sales/Average accounts receivable

= $480,000/$900,000*

*(1,000,000 + 800,000)/2

= 5.33 times (A rather slow rate of debtors turnover for a trading company).

Accounts receivable turnover ratio calculator

Average accounts receivable:
Result:
Also Check:  Current Cash Debt Coverage Ratio

Leave a Comment