The receivables turnover ratio is an accounting method used to quantify how effectively a business extends credit and collects debts on that credit.
A high accounts receivable turnover is desirable as it indicates that the company enjoys a high-quality customer base that is able to pay their debts quickly.
Formula to calculate accounts receivable turnover.
Example:
Suppose a firm’s net credit sales in a certain financial year was $ 50,000 while the average accounts receivables were $ 20,000. Calculate the accounts receivable turnover.
Therefore, the accounts receivable is 2.5.
