collected its accounts receivable 5.56 times during the year. Therefore, the receivables turnover ratio for X Inc. Receivables Turnover Ratio: Now we can calculate the receivables turnover ratio using the formula: Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable Receivables Turnover Ratio = $500,000 / $90,000 ≈ 5.56 had accounts receivable of $100,000, and at the end of 2022, it had accounts receivable of $80,000.Īverage Accounts Receivable: To calculate the average accounts receivable, we add the beginning and ending accounts receivable and divide by 2: Average Accounts Receivable = ($100,000 + $80,000) / 2 = $90,000 had net credit sales of $500,000 during 2022.Īccounts Receivable: At the beginning of 2022, X Inc.
Once it’s been calculated, this ratio shows how efficiently a firm manages the credit it has issued to its customers and collects on that credit. To calculate the receivables turnover ratio, accountants divide the net value of credit sales during a set period by the average accounts receivable during the same period. It’s usually worked out on an annual basis, but this can also be broken down to produce a monthly or quarterly figure. What you need to know about receivables turnover ratio Once you have these two values, you can divide net credit sales by the average accounts receivable to obtain the receivables turnover ratio. Net Credit Sales: This refers to the total amount of sales made on credit during a specific period, minus any returns, allowances, or discounts.Īverage Accounts Receivable: This is calculated by adding the beginning and ending accounts receivable balances for a given period and dividing the sum by 2. To calculate the receivables turnover ratio, you need to determine the net credit sales and the average accounts receivable. To calculate the Debtors Turnover Ratio, you need to divide the total credit sales by the. It measures how efficiently a company manages its accounts receivable and converts them into cash. Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable The Debtors Turnover Ratio is an important financial metric used in procurement to evaluate a company’s ability to collect its debts from customers. The formula for calculating the receivables turnover ratio: The first step is to calculate your accounts receivable turnover ratio (ARTR), which can also boost the long-term financial health of your business. It’s widely used in business to measure how efficiently a company is using its assets. You might have heard of it being called the debtor’s turnover ratio.
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