![]() ![]() In some businesses, the customer made the payment by cash when purchasing, and in some businesses, sales on credit mostly happen.Īnother important element to calculate this ratio is Account Receivable. It depends on the nature of business and customers’ behavior. This is the total sales that the entity sells on credit during the year by excluding the sales that customers made by cash. The first important element is the Net Credit Sales. Understand the Formula:īefore going into detail, let start with the element that we use to calculate this ratio. The following are the details of the Accounts Receivable Turnover Ratio Analysis that deeply analyze the factors that affect the ratio, including credit policy, collection procedure, nature of business, and the importance of this ratio. ![]() However, a small ratio means there are large AR at the end of the period, and it is assumed to be bad performance in term of collection. High turnover generally assumes to be well performed. For example, the credit policy is good, and collection procedures are well performed. The high AR turnover ratio suggests many positive things that indicate the entity has well managed its AR. It uses to analyze the number of times that net credit sales during the period are collected based on the relationship between net credit sales during the period and averaged accounts receivable at the end of the period. Accounts Receivable Turnover is the efficiency ratio that directly measures the performance of receivable collecting activities over the year. ![]()
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