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# Receivables Turnover Ratio Calculator For Business Growth

## Receivables Turnover Ratio Calculator

Result

Receivables Turnover RatioInterpretation
<3.99Poor
4 - 5.99Average
>6Good

Consult Your Doctors for Further Investigation

The accounts receivable turnover ratio measures the number of times a company's accounts receivable balance is collected in a given period.

## Receivables Turnover Ratio Calculator Overview

• A receivables turnover ratio calculator is a tool used to calculate the receivables turnover ratio for a business.
• The receivables turnover ratio measures how many times a company collects its average accounts receivable balance during a specific period, typically a year.
• This ratio is an important indicator of a company's ability to collect its outstanding debts in a timely manner.

### What is Receivables Turnover Ratio

• The receivables turnover ratio is a financial metric that measures how many times a company collects its average accounts receivable balance during a specific period, typically a year.
• It indicates how efficient a company is at collecting outstanding debts from its customers.
• A higher receivables turnover ratio indicates that a company is collecting its outstanding debts more quickly, which is generally seen as a positive sign.
• Conversely, a lower ratio may indicate that a company is struggling to collect its outstanding debts, which could be a sign of underlying financial problems.
• It's important to note that the ideal receivables turnover ratio can vary by industry and company.
• It's also important to analyze the trend of the ratio over time and compare it to other companies in the same industry to get a better understanding of how well the company is managing its accounts receivable.

## Steps To Calculate Receivables Turnover Ratio

Here are steps to calculate Receivables Turnover Ratio.

• Enter Net Credit Sales
• Enter Accounts Opening
• Enter Accounts Closing
• Calculate Average Account Receivables
• Calculate Receivables Turnover Ratio

## Receivables Turnover Ratio Formula

Here is formula to calculate Receivables Turnover Ratio.

Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivables

Where Net Credit Sales are the total credit sales made during the period, and Average Accounts Receivable is the average balance of accounts receivable during the same period.

For Calculating Average Accounts Receivables

Average Accounts Receivables = (Accounts Opening + Accounts Closing) / 2

## How To Calculate Receivables Turnover Ratio

To calculate the receivables turnover ratio, you need to know the net credit sales and the average accounts receivable balance for a specific period, typically a year.

Here's an example of how to calculate the receivables turnover ratio:

Assume that a company had net credit sales of \$500,000 and an average accounts receivable balance of \$100,000 for the year.

• Step 1: Calculate the accounts receivable turnover ratio by using the formula:
• Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable
• Receivables Turnover Ratio = \$500,000 / \$100,000
• Receivables Turnover Ratio = 5

• Step 2: Interpret the results. In this example, the receivables turnover ratio is 5, which means that the company collected its average accounts receivable balance 5 times during the year. This indicates that the company is collecting its outstanding debts relatively quickly, which is generally seen as a positive sign.

It's important to note that the ideal receivables turnover ratio can vary by industry and company. It's also important to analyze the trend of the ratio over time and compare it to other companies in the same industry to get a better understanding of how well the company is managing its accounts receivable.

## What is Good Receivables Turnover Ratio

Here is a good receivables turnover ratio but it can vary on industry or some other specification wise.

Interpretation Receivables Turnover Ratio
Poor Below 4
Average 4 to 6
Good 6 or higher

• Note that these values are approximate and can vary by industry and company.
• It's important to compare the ratio to other companies in the same industry to get a better understanding of how well the company is managing its accounts receivable.
• Additionally, analyzing the trend of the ratio over time can help to identify any underlying issues and determine if the company's collection efforts are improving or deteriorating.

## High Receivables Turnover Ratio vs Low Receivables Turnover Ratio

Here is basic difference between High Receivables Turnover Ratio vs Low Receivables Turnover Ratio.

High Receivables Turnover Ratio Low Receivables Turnover Ratio
The company is collecting its outstanding debts relatively quickly, which is generally seen as a positive sign. The company is struggling to collect its outstanding debts, which could be a sign of underlying financial problems.
This indicates that the company has an effective credit and collections process, and is managing its accounts receivable efficiently. This may indicate that the company has an ineffective credit and collections process, or that it is extending credit to customers who are unlikely to pay on time.
A high receivables turnover ratio can help to improve cash flow, reduce the risk of bad debts, and improve profitability. A low receivables turnover ratio can lead to cash flow problems and may indicate a need for additional financing or a change in credit policies.
A high ratio can also help to increase the confidence of lenders, investors, and other stakeholders in the company's financial stability and prospects for growth. A low ratio can make it difficult for the company to obtain financing, and may lead to a decrease in the company's credit rating.

## Receivables Turnover Ratio Calculator Benefits

There are several benefits of using a receivables turnover ratio calculator, including:

• Saves time: Calculating the receivables turnover ratio manually can be time-consuming, especially if a company has a large number of customers and transactions. A receivables turnover ratio calculator can quickly perform the necessary calculations, saving time and effort.
• Increases accuracy: A receivables turnover ratio calculator can ensure accurate calculations, reducing the risk of errors that can occur when calculating the ratio manually.
• Helps with decision-making: The receivables turnover ratio is an important financial metric that can help businesses make informed decisions about credit policies, collection procedures, and other strategies related to managing accounts receivable. A receivables turnover ratio calculator can provide businesses with a quick and easy way to analyze their receivables turnover ratio and make informed decisions based on the results.
• Provides insights: By using a receivables turnover ratio calculator, businesses can gain insights into their accounts receivable management practices and identify areas for improvement. For example, a low receivables turnover ratio may indicate that the company needs to improve its credit policies or collection procedures.

Summary

Overall, a receivables turnover ratio calculator can be a valuable tool for businesses looking to improve their financial management and decision-making processes. Check More Finance Related Calculator on Drlogy Calculator to get exact business and financial solutions for growth.

Reference

• Receivables turnover ratio - Wikipedia [1].
• Receivables Turnover Ratio Defined: Formula, Importance, Examples, Limitations [2].
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## Receivables Turnover Ratio Calculator FAQ

### What is the formula for the receivables turnover ratio?

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

### What is AR turnover ratio examples?

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

### What is a good receivables turnover ratio?

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.

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