Receivables Turnover Ratio
5paisa Research Team
Last Updated: 01 Jan, 2025 10:30 AM IST

Content
- What Is the Accounts Receivables Turnover Ratio?
- Understanding ReceivablesTurnover Ratios
- Receivables Turnover Ratio Formula & Calculation
- What's The Difference between Low and High Turnover Ratio
- Receivables Turnover Ratio and Its Significance
- What Are the Receivables Turnover Ratio Limitations?
- The Best Receivables Turnover Ratio Example
- Conclusion
Receivables Turnover Ratio defines the systematic use of ratios to interpret financial statements considering an organisation's operating performance & financial position. It encompasses comparison for a thoughtful and effective interpretation of a financial statement. Each ratio is categorised in any of the following ways:
● Profitable Ratio
● Liquidity Ratio
● Leverage Or Solvency Ratio And
● Turnover Ratio.
The receivables turnover ratio can measure the times a firm collects the average balance. It's the quantification of an establishment's efficacy in gathering balances from clients in addition to managing the line of credit procedure.
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Frequently Asked Questions
With a decent accounts receivable turnover ratio, companies strive for a minimum of 1.0 ratio. This ensures it collects the complete full amount of the average accounts receivable once during the period.
A higher number is always better because it means that the customers pay timely and the firm is great at collecting.
Low receivable turnover is caused by a nonexistent or loose credit policy, a massive proportion of customers having financial issues or an inadequate collection.
A high ratio indicates that the firm's accounts receivable collection is efficient & it has a great proportion of quality customers paying debts on time. In addition, a high receivables turnover ratio also indicates that the firm operates on cash.
If the ratio is 10, it usually indicates that the average accounts receivable gets collected within 36.5 days
The average accounts receivable refers to the sum of starting & ending receivables over a timeframe (usually annually, quarterly, or monthly) and is divided by two. The accounts receivable turnover ratio is used for making balance sheet forecasts.