Accounts Receivable Turnover Ratio Calculator

Accounts Receivable Turnover Ratio Formula:

\[ \text{Accounts Receivable Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} \]

Accounts Receivable Turnover Ratio:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Accounts Receivable Turnover Ratio?

The Accounts Receivable Turnover Ratio is a financial metric that measures how efficiently a company collects revenue from its credit sales. It indicates how many times a company collects its average accounts receivable during a period.

2. How Does the Calculator Work?

The calculator uses the Accounts Receivable Turnover Ratio formula:

\[ \text{Accounts Receivable Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} \]

Where:

Net Credit Sales — Total credit sales minus returns and allowances
Average Accounts Receivable — (Beginning AR + Ending AR) / 2

Explanation: A higher ratio indicates more efficient collection of receivables, while a lower ratio may suggest collection issues.

3. Importance of Accounts Receivable Turnover Ratio

Details: This ratio is crucial for assessing a company's credit policies, collection efficiency, and overall financial health. It helps identify potential cash flow problems and evaluate the effectiveness of accounts receivable management.

4. Using the Calculator

Tips: Enter net credit sales and average accounts receivable in currency units. Both values must be positive numbers. The calculator will compute the turnover ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Accounts Receivable Turnover Ratio?
A: The ideal ratio varies by industry, but generally, a higher ratio is better. Compare with industry averages for meaningful analysis.

Q2: How often should this ratio be calculated?
A: Typically calculated annually, but can be computed quarterly for more frequent monitoring of receivables management.

Q3: What does a decreasing ratio indicate?
A: A decreasing ratio may indicate slower collections, relaxed credit policies, or increased customer payment problems.

Q4: How is this ratio related to the collection period?
A: The ratio is inversely related to the average collection period (365 / ART ratio = average collection days).

Q5: What are limitations of this ratio?
A: Seasonal businesses may have distorted averages, and the ratio doesn't account for the quality of receivables or bad debt provisions.