Accounts Receivable Turnover Ratio Calculator
The Accounts Receivable Turnover Ratio measures how efficiently a company collects credit sales from customers. A higher ratio indicates more efficient collection processes.
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Total sales made on credit during the period, minus any returns or allowances
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Accounts receivable balance at the start of the period
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Accounts receivable balance at the end of the period
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Length of the accounting period in days (typically 365 for annual)
Understanding the Accounts Receivable Turnover Ratio
The Accounts Receivable Turnover Ratio is calculated as:
Net Credit Sales ÷ Average Accounts Receivable
Where Average Accounts Receivable = (Beginning AR + Ending AR) ÷ 2
What It Means:
- High Ratio: Indicates efficient collection processes (typically good)
- Low Ratio: May suggest collection problems or loose credit policies
Days Sales Outstanding (DSO):
DSO shows the average number of days it takes to collect payment after a sale:
(Average Accounts Receivable ÷ Net Credit Sales) × Period Length