Receivables Turnover Ratio Calculator

The formula for the receivables turnover ratio is:

Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Where:

• Net Credit Sales = Total Sales - Cash Sales - Sales Returns
• Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

An example of the AR turnover ratio calculation: Let's say a company has $1,000,000 in net credit sales during the year and an average accounts receivable balance of $200,000. The receivables turnover ratio would be:

Receivables Turnover Ratio = $1,000,000 / $200,000 = 5

A good receivables turnover ratio varies by industry and company, but a higher ratio is generally better as it indicates that the company is collecting its outstanding receivables quickly. A ratio of 5 or higher is considered good, but again, it depends on the industry and company.