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Accounts Receivables Turnover Ratio – Meaning, Formula, Calculation & Interpretations [Video]

Accounts Receivables Turnover Ratio – Meaning, Formula, Calculation & Interpretations

This tutorial explains how the accounts receivable turnover ratio works, including its meaning, formula, calculations, and interpretation. Furthermore, using the Colgate Case Study, we will demonstrate how to calculate this ratio in Excel.
You can download the Colgate Accounts Receivables Turnover template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/

What is Accounts Receivables Turnover Ratio?
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The accounts receivable turnover ratio assesses a company’s ability to collect credit from customers. In simple terms, it indicates how many times a company’s average accounts receivables are collected and converted into cash over a specific time period, which is often a year.

Formula
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Accounts Receivable Turnover Ratio Formula = Net Credit Sales / Average Accounts Receivables

Interpretation of Accounts Receivables Turnover Ratio
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– A higher ratio indicates that the company is collecting cash more frequently and/or that its debtors are of good quality. It could also indicate that the company does much of its business in cash or has a stringent credit policy.
– A lower ratio could indicate that the company is inefficient in collecting debts, has a liberal credit policy, or has poor debtor quality.

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