![]() The significance of the Accounts Receivable turnover ratio is that this ratio indicates the speed with which the amount is collected from accounts receivable. While calculating this ratio, the provision for bad debt and doubtful debts is not deducted from total accounts receivable, so it may not give a false impression that accounts receivable are collected quickly. timesĪverage accounts receivables are calculated by adding the accounts receivable at the beginning of a period as well as at the end of the period and by dividing the total by two. This ratio indicates the relationship between revenue from operations and average accounts receivables during the year.Īccounts receivable turnover ratio = Credit Revenue from Operations ( Credit Sales ) / Average Accounts Receivable = …. I) Accounts Receivable Turnover Ratio ( ARTO ) ![]() Higher turnover ratios indicate better use of capital or resource and, in turn, lead to higher profitability. In other words, these ratios indicate how efficiently the working capital and inventory are being used to obtain sales. Turnover indicates the speed or number of times the capital employed has been rotated in the process of doing business. ![]() Therefore, these ratios are also called “Turnover Ratios”. In general, Activity Ratios are calculated on the basis of the cost of sales or sales. To evaluate a company, Accounts Receivable turnover ratios are used by investors and analysts to assess its liquidity and determine the effectiveness of its credit and collection policies. Accounts Receivable turnover ratio, categorized under Activity Ratios, is one of the key metrics measured by companies to assess the company’s financial health and can provide insight into a company’s ability to collect outstanding invoices.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |