1. What is Accounts Receivable Turnover Ratio?

The Accounts Receivable Turnover Ratio measures how efficiently a company collects credit sales from customers. It shows how many times a company collects its average accounts receivable balance during a period.

2. How Does the Calculator Work?

The calculator uses the following equation:

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 problems.

3. Importance of AR Turnover Ratio

Details: This ratio helps assess a company's credit policies, collection efficiency, and liquidity. It's crucial for cash flow management and financial health analysis.

4. Using the Calculator

Tips: Enter net credit sales and average accounts receivable in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good accounts receivable turnover ratio?
A: It varies by industry, but generally higher is better. Compare with industry averages for meaningful analysis.

Q2: How is this ratio different from days sales outstanding (DSO)?
A: DSO shows the average collection period in days, while turnover ratio shows collections per period.

Q3: What if I don't have credit sales data?
A: The ratio requires credit sales specifically. Using total sales will distort the ratio if cash sales are significant.

Q4: How often should this ratio be calculated?
A: Typically calculated annually, but quarterly or monthly calculation can provide more timely insights.

Q5: What causes a low turnover ratio?
A: Poor collection processes, lax credit policies, or customers with financial difficulties.