How do you calculate receivables turnover ratio?

Here is a receivables turnover calculator, which computes how quickly a company turns over its receivables, or sales extended on credit to customers. Enter the company's net credit sales (or, optionally, top line sales) and two period's accounts receivable to compute the ratio. What is the receivables turnover ratio?

What happens if Accounts Receivable Turnover Ratio is low?

If a company's accounts receivable turnover ratio is low, this may be an indicator that a company is not reviewing the creditworthiness of its clients enough. Slower turnover of receivables may eventually lead to clients becoming insolvent and unable to pay.

What is a/R turnover ratio?

The A/R turnover ratio is part of a larger family of financial ratios known as asset management ratios, or activity ratios. These ratios measure how efficiently a company is managing its assets to generate cash flows for the business. For more details on these ratios, check out our deep dive into asset management ratios.

How does a distribution division affect a company's turnover ratio?

For example, if the company's distribution division is operating poorly, it might be failing to deliver the correct goods to customers in a timely manner. As a result, customers might delay paying their receivables, which would decrease the company’s receivables turnover ratio.