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Net Sales
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Accounts Receivable Turnover =
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Accounts Receivable
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Explanation of Accounts Receivable Turnover:
The Accounts Receivable Turnover measures the number of times
Accounts Receivable were collected during the year. This is also a
measure of how well the company collects sales on credit from its customers,
just as Average Collection Period measures this in days.
Importance of Accounts Receivable Turnover:
A high, or increasing Accounts Receivable Turnover is
usually a positive sign - showing the company is successfully executing
its credit policies and quickly turning its Accounts Receivables into
cash. A possible negative aspect to an increasing Accounts Receivable
Turnover is the company may be too strict in its credit policies and missing
out on potential sales.
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