Receivables turnover ratio
Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
Formula:
A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. While a low ratio implies the company is not making the timely collection of credit.- Days' sales in receivables = 365 / Receivable Turnover Ratio
- Average Collection Period = /Credit Sales
- Average Debtor collection period: Trade Receivables/Credit Sales x 365 = Average collection period in days,
- Average Creditor payment period: Trade Payables/Credit Purchases x 365 = Average Payment period in days,
