![]() ![]() ![]() When analyzing financial ratios of several different but similar companies, a company can better understand whether it is an industry-leader or whether it is falling behind. ![]() A financial ratio that indicates the speed. Definition: Describes how long it takes for a company to collect debts. How it is performing compared to its competitors. What is Accounts Receivable Turnover Ratio.When analyzing financial ratios of a single company over time, that company can better understand the trajectory of its accounts receivable turnover. Slower turnover of receivables may eventually lead to clients becoming insolvent and unable to pay. 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. How sufficiently a company is evaluating the credit of clients.A company can project what cash it will have on hand in the future when better understanding how quickly it will convert receivable balances to cash. When it might be able to make large capital investments.This is the average number of days it takes customers to pay their debt. To calculate the AR turnover down to the day, divide your ratio by 365. Some lenders may use accounts receivable as collateral with strong historical accounts receivable activity, a company may have greater opportunities to borrow funds. The AR turnover ratio is an efficiency ratio that measures how many times a year (or set accounting period) that a company collects its average accounts receivable. What collateral opportunities a company may have.Formula : Sales/Average Accounts Receivable. If your customers have 30 days to pay, there are 12 thirty day periods in a year so the accounts. As a company processes receivable balances faster, it gets its hand on capital faster. The AR Turnover Ratio is calculated by dividing net sales by average account receivables. This measures how frequently your customers are paying. How well a company is collecting credit sales. ![]()
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