#RECEIVABLE TURNOVER RATIO FREE#

Lets use the above example to understand how the number of days is calculated. All we need to do is to convert the answer to the number of days.

In the above case we have reached an answer expressed in terms of percentage. The number of days of receivables outstanding is considered by many to be a different ratio when in reality it is just an extension of the same ratio. Lets say the answer was 27%, it would mean that on an average the firm has 27% of its receivables outstanding at any given point of time. This formula converted to a percentage shows the average amount of receivables that the firm has at any given point of time. Formula for Accounts Receivable Turnover RatioĪccounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable *Īverage Accounts Receivables = (Beginning Accounts Receivables + Ending Accounts Receivables) / 2 Hence, accounts receivable turnover ratio is a closely watched number. Also the older accounts receivable become, the less likely they are to be collected.

#RECEIVABLE TURNOVER RATIO FREE#

Buyers are using the firms interest free credit and making delayed payments to the firm which has to arrange for working capital at a cost. If the firm is taking too long to collect the accounts receivable, it means that the firm is not utilizing its capital in the best possible way. The transactions are largely conducted on credit and therefore lead to the existence of accounts receivable on the balance sheet.Īccounts receivable are a dangerous item. Large companies hardly conduct any transactions on cash basis with their wholesalers and distributors. Like inventory, accounts receivable are considered a necessary evil to do business. Accounts receivable are a very important part of the current assets of any business.

Receivable turnover ratio