What is Accounts Receivable Turnover Ratio?

Definition: Describes how long it takes for a company to collect debts.

A financial ratio that indicates the speed at which a company collects its accounts receivable, i.e: a ratio of 10 means that the company’s accounts receivable are turning over 10 times per year.

What this shows is that the company, on average, is collecting it’s receivables in 36.5 days (365 days per year divided by 10). This collection period is very important because it indicates when the company can expect to receive their payments.

How to calculate the ratio:

ACCOUNT RECEIVABLE TURNOVER RATIO = NET SALES / AVERAGE NET RECEIVABLES