1. What is Receivables Turnover?

Receivables turnover is a financial ratio that measures how efficiently a company collects its accounts receivable. 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 Receivables Turnover formula:

Where:

• \( Sales \) — Total sales revenue (USD)
• \( Average Receivables \) — Average accounts receivable balance (USD)

Explanation: The ratio indicates how efficiently a company collects credit sales from customers. Higher values generally indicate more efficient collection processes.

3. Importance of Receivables Turnover

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

4. Using the Calculator

Tips: Enter total sales and average receivables in USD. Both values must be positive numbers. Average receivables is typically calculated as (beginning receivables + ending receivables) / 2.

5. Frequently Asked Questions (FAQ)

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

Q2: How is this different from days sales outstanding (DSO)?
A: DSO shows the average collection period in days, while receivables turnover shows collections per period. They're related but present the information differently.

Q3: Should I use credit sales or total sales?
A: Ideally use credit sales, but total sales is often used when credit sales data isn't available.

Q4: What causes a low receivables turnover?
A: Poor collection processes, lax credit policies, or customers with financial difficulties can all lead to lower turnover.

Q5: Can the ratio be too high?
A: Extremely high ratios might indicate overly strict credit policies that could be limiting sales growth.