1. What is Receivables Turnover Ratio?

The Receivables Turnover Ratio measures how efficiently a company collects its accounts receivable. It shows how many times a company collects its average accounts receivable during a period.

2. How Does the Calculator Work?

The calculator uses the Receivables Turnover Ratio formula:

Where:

• \( \text{Sales} \) — Total credit sales during the period
• \( \text{Accounts Receivable}_{\text{beginning}} \) — AR balance at start of period
• \( \text{Accounts Receivable}_{\text{ending}} \) — AR balance at end of period

Explanation: The ratio shows how many times a company converts its receivables into cash during a period. Higher ratios indicate more efficient collection.

3. Importance of Receivables Turnover Ratio

Details: This ratio is crucial for assessing a company's credit policies and collection efficiency. It helps identify potential cash flow problems and evaluate credit risk.

4. Using the Calculator

Tips: Enter total credit sales and accounts receivable balances at beginning and end of period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Receivables Turnover Ratio?
A: It varies by industry, but generally higher is better. Compare with industry averages for meaningful analysis.

Q2: How does this relate to Days Sales Outstanding (DSO)?
A: DSO = 365 / Receivables Turnover Ratio. It shows the average collection period in days.

Q3: Should I use credit sales or total sales?
A: Ideally use credit sales, but if unavailable, total sales can be used as an approximation.

Q4: What if my ending AR is zero?
A: The ratio becomes undefined (infinite) as you're dividing by zero. This suggests all receivables were collected.

Q5: How often should I calculate this ratio?
A: Typically calculated quarterly or annually, but more frequent monitoring can help identify collection issues early.