Financial modelling terms explained

Accounts Receivable Turnover Ratio

This article discusses accounts receivable turnover ratio, which is a financial ratio used to measure how effectively a company collects its receivables. This ratio shows the number of times a company's accounts receivable are collected in a year.

What Is Accounts Receivable Turnover Ratio?

The Accounts Receivable Turnover Ratio (ART) measures how efficiently a company is collecting payments on its outstanding invoices. The ratio is calculated by dividing net sales by average accounts receivable.

A high ratio indicates that the company is collecting payments quickly, while a low ratio suggests that the company is having trouble collecting payments. The ratio can be used to assess the company's credit risk and to determine the need for a credit line.

How Do You Calculate Accounts Receivable Turnover Ratio?

The accounts receivable turnover ratio (ARTR) measures a company's ability to collect payments on its outstanding invoices. The ratio is calculated by dividing net sales by average accounts receivable.

The ARTR can be used to measure a company's effectiveness in managing its accounts receivable. A high ARTR indicates that the company is able to collect payments on its outstanding invoices quickly, while a low ARTR indicates that the company is taking longer to collect payments. The ARTR can also be used to compare a company's performance with its competitors.

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