Podcasts are a convenient way for savers to boost their personal finance knowledge.
Accounts receivable turnover
Accounts receivable turnover describes the health of a business. Bankrate explains.
What is accounts receivable turnover?
Accounts receivable turnover is the number of times per year that a business collects its average accounts receivable. Accountants and analysts use accounts receivable turnover to measure how efficiently companies collect on the credit that they provide their customers.
Accounts receivable turnover is described as a ratio of average accounts receivable for a period divided by the net credit sales for that same period. This ratio gives the business a solid idea of how efficiently it collects on debts owed toward credit it extended, with a lower number showing higher efficiency.
To calculate the accounts receivable turnover, start by adding the beginning and ending accounts receivable and divide it by 2 to calculate the average accounts receivable for the period. Take that figure and divide it into the net credit sales for the year for the average accounts receivable turnover. The formula looks like the following:
- Step 1: Beginning accounts receivable + ending accounts receivable / 2 = net accounts receivable
- Step 2: Net credit sales / accounts receivable = accounts receivable turnover
Do you owe on unpaid credit? Consider a balance-transfer credit card to help manage your debt.
Accounts receivable turnover example
Corporation A has a beginning accounts receivable of $125,000 and an ending accounts receivable of $235,000 and a net credit sales of $2.8 million, the formula would look like this:
- Step 1: $125,000 + $235,000 = $360,000 / 2 = $180,000
- Step 2: $2,800,000 / $180,000 = 15.55
Corporation A has an accounts receivable turnover of 15.55. Company C, its biggest competitor has an accounts receivable turnover of 21, while Corporation B has an accounts receivable turnover of 10. Based on these numbers, Corporation B has the strongest collections.
More From Bankrate
5 min read May 24, 2022
These 10 money-themed books can help you improve your finances.4 min read May 13, 2022
There are many ways scammers can steal identities and use them for gain, usually of a financial nature.4 min read May 06, 2022
A significant portion of Americans experience financial worries.5 min read May 02, 2022
Identity theft is a term that covers a variety of crimes in which someone steals another person’s personal information.5 min read Apr 29, 2022
Look for a plan with a reputable provider that offers services that make you feel confident.5 min read Apr 29, 2022
If you discover the breach early and act without delay, you could minimize the damage.4 min read Apr 29, 2022
Here’s a breakdown of where identity theft occurs most often, according to FTC data.5 min read Apr 29, 2022
Stay alert and don’t think identity theft can’t happen to you.5 min read Apr 29, 2022