Here is the formula to calculate this value:Īverage accounts receivable = (Beginning accounts receivable balance + ending accounts receivable balance) / 2
In that case, you can add the company's receivables at the beginning of the quarter and the end of the quarter and then divide the sum by two. For example, suppose you want to calculate the average accounts receivable of a company for a quarter. The average accounts receivable is the sum of a company's starting and ending accounts receivable figure in a selected period, divided by two. Related: What Is A Liquidity Ratio? (Definition, Types And Example) Average accounts receivable Most companies provide their net credit sales in their income statement. The receivable turnover ratio uses net credit sales instead of cash sales, as cash sales do not lead to any receivables. Net credit sales = Gross credit sales - Returns These are the sales after deducting the value of any returns or refunds, and the formula for calculating it is: Net credit sales is the value of the cash the company collects at a later date. In this formula, there are two main elements, including: Net credit sales The formula for the receivable turnover ratio is:Īccounts receivable turnover ratio = Net credit sales / Average accounts receivable Related: What Is Working Capital Management? (Importance And Ratios) Accounts Receivable Turnover Ratio Formula
Companies that offer credit services or products for which the customers can pay later may use longer durations to calculate their receivable turnover ratio. It is essential to note that companies may collect the outstanding accounts receivable at different times. Besides helping compare how well different companies manage their clients and finances, this ratio can help businesses understand their competition, improve internal collection or renewal processes and enable investors to identify potential investment opportunities. The receivable turnover ratio is suitable for assessing a company's effectiveness in managing its line of credit and outstanding balance. To use the revenue companies generate from credit purchases, they collect accounts receivables at regular intervals. The accounts receivable turnover ratio refers to the efficiency of a company in collecting its outstanding accounts receivable amount. What Is The Accounts Receivable Turnover Ratio? Please note that none of the companies, institutions or organisations mentioned in this article are associated with Indeed. Related: What Are Profitability Ratios? (With Types And Examples)
#Calulator to figure account receivable turnover how to
In this article, we define the accounts receivable turnover ratio, share its formula, discuss the meaning of a high receivable turnover ratio, describe how to calculate it and provide an example.
If you are an accountant, senior business leader or investor, knowing this value can help you determine the financial health of the company and provide other unique insights. One such approach is to assess how often a business collects its average receivables during a period. Many financial models and metrics measure business performance using specialised tools, formulas and equations.
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