Accounts Receivable Turnover – The bigger the numerical ratio the better
This is one of the Liquidity & Efficiency Ratios in which efficiency shows how effective a company is with its assets.
Calculate this ratio using the below equation. Values in the equation can be acquired from the Balance Sheet (with the exception of “Credit Sales” which is found in the Income Statement).
Equation:
Accounts Receivable Turnover = (Credit Sales) ÷ (Accounts Receivable)
Equation results indicate whether a company’s extension of credit and collection of accounts receivable are efficient.
NOTE: Poor turnaround on credit collection results in extending interest-free loans to the client.