Accounts Receivable Turnover Ratio

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on August 26, 2021

Accounts receivable turnover ratio ( also known as debtors turnover ratio) shows the effectiveness of the company’s credit control system.
Much like inventory turnover ratio, accounts receivable turnover ratio shows how many times in a year debtors are given credit and they fully repay it. It is calculated as follows:

Formula of Accounts Receivable Turnover Ratio

Accounts receivable turnover ratio

Example

The Fine company sells goods on credit. The following data belongs to most recent period:

  • Net sales: $4,800,000
  • Accounts receivable at the beginning of the year: $1,000,000
  • Accounts receivable at the end of the year: 800,000

Compute accounts receivable turnover ratio of the Fine Trading Company.

Solution:

Accounts receivable turnover ratio = Sales/Average accounts receivable
= $480,000/$900,000*
*(1,000,000 + 800,000)/2
= 5.33 times (A rather slow rate of debtors turnover for a trading company).

Accounts Receivable Turnover Ratio Calculator

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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