What is the formula for calculating accounts receivable turnover?

The accounts receivable turnover is calculated by dividing the net credit sales by the average accounts receivable Accounts Receivable Accounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment.

How do you calculate the average accounts receivable?

First, use a company’s balance sheet to calculate average receivables during the period: Average Accounts Receivable Formula = (beginning A/R + ending A/R) / 2 Next, divide the average receivables balance by net credit sales during the period.

What does a high accounts receivable turnover ratio mean?

A high receivables turnover ratio can indicate that a company’s collection of accounts receivable is efficient and that it has a high proportion of quality customers who pay their debts quickly. A high receivables turnover ratio might also indicate that a company operates on a cash basis .

How does the accounts receivable turnover ratio help in assessing a business's financial health?

Receivables turnover ratio is measured daily. A high turnover ratio is healthy for a company, because it means that time between credit sales and receiving the money is not too long. The company gets outstanding debts paid quickly, has liquidity, and can continue operating - that is, making new credit sales.